What sectors will face the biggest challenges in 2016/2017 in the UK & Europe? This series offers industry insights, real time updates, analysis of the market and key considerations for stakeholders to emerge stronger.

Shipping - Batten down the hatches

Three of the biggest challenges facing the shipping sector

The Shipping sector in the UK is experiencing significant change which presents a number of challenges;

  1. Supply/demand imbalance - Global fleets are continuing to grow due to orders placed in 2008 coming into the market, despite demand plateauing due to slow global growth
  2. Lack of liquidity - As banks are forced to curtail their lending capacity, shipping companies need to explore alternative financing options
  3. Increasing operating costs - Operating costs including crew wages, hull and machinery insurance, dry-docking, repairs and maintenance are on the rise.

Key considerations for owners & operators

  • Increase operational efficiency, particularly around bunker management, procurement and asset utilisations
  • Fix balance sheets, reduce debt where possible and divest non-core assets
  • Better manage cash and working capital
  • Change governance processes and transparency to make the business more attractive for financing.

Key considerations for lenders

  • Refinancing through traditional bank channels will likely become more difficult as we see lenders divest their shipping interests.
  • Government desire to support national industries is wavering particularly where there are other national operators to take up some of the operations and assets.
  • Bondholders are likely to play an active role in any standstill or restructurings
  • Divestment of traditional bank lenders could lead to opportunities for hedge funds
  • The industry has begun to recognise the need for fundamental, underlying structural issues to be addressed through a proper, focused restructuring process.
"We can see another round of significant restructuring negotiations between operators, their lenders and the broad range of stakeholders, as liquidity once again becomes a major issue, but an increasing number of insolvencies (whether at an operating company level or through vessel arrests) appear likely.

"For lenders, keeping a close eye on operations is critical and portfolio sales or loss-sharing arrangements may again be the order of the day. For the borrowers, in an industry with a growing demand/supply imbalance, operational efficiency and active stakeholder management will be critical."

David Soden, Shipping Lead

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