Shipping lines are $80bn in debt, market oversupplied

Drewry and World Container Index say flurry of new mega ship orders is putting immense pressure on already heavily indebted shipping sector
Drewry and World Container Index say flurry of new mega ship orders is putting immense pressure on already heavily indebted shipping sector
Drewry and World Container Index say flurry of new mega ship orders is putting immense pressure on already heavily indebted shipping sector

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RELATED: Maersk preparing to order TEN 21,000-teu ships

The container industry is at a fork roads, according to research firm Drewry, which says that some ocean carriers will reap the benefits of fleet expansion, while others will be forced to seek help from banks to service their debt.

Much of the shipping sector’s US $80-billion debt is a result of a spate of newbuild orders over the last few years, with no sign of a slowdown in the shipping sector’s desire for ultra-large container vessels (ULCV) in the last six years.

Maersk, MOL, OOCL and CMA CGM have all placed big orders, or been rumored to be considering big multi-ship orders for container carriers in excess of 18,000-teu.

Investments in new tonnage have played a major contributing role in turning the fairly healthy shipping market six months ago, into a challenging one at present, says the report.

Drewry underscored in its report that the influx of tonnage compared to what the global economy can handle was going to put some shipping companies under immense pressure in the years ahead if they cannot fill their ULCVs.

“Drewry believes the relentless influx of ULCVs into the Asia-Europe trade and the resulting cascading of over-sized vessels into secondary trades will continue to put pressure on the global index in the short term,” says part of the report.

The latest data from the World Container Index (WCI) showed that the benchmark rate for Shanghai-to-Los Angeles trade dropped to US $1,578 per 40ft, the lowest level in more than three years. The last time the sector saw such low rates was in 2011.

"Order frenzy not only creates significant capacity over-supply but also financing issues,” said WCI in its report. “We believe, as the industry is still reeling under high debt only the strongest players with healthy balance sheets will be able to successfully finance ULCV orders with their own money."

RELATED: OOCL orders six new 21,000-teu ships

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