By Robert Wright
When BW Maritime, one of the world’s biggest shipping groups, revealed early last week that it had laid up one of its oil tankers, it was a moment with many historical echoes.
Folk memories in the world’s shipping industry of the worst industry slumps often revolve around lurid tales of how ships spent months or years moored in fiords or up rivers.
Confirmation that owners were once again accepting that some vessels would be unemployed for the foreseeable future underlined the historic dimensions of the crisis.
Yet data appearing today showing a wave of short selling of shipping company shares highlights a crucial difference between now and the mid-1980s, the last era of such difficult market conditions.
While the tanker operators, dry bulk shipowners and container lines of 25 years ago were mostly private and often family controlled, about 40 per cent of ships now belong to companies listed on stock markets, often in the US.
As a result, according to Paul Slater, a financial adviser to shipping companies, the private agreements and compromises that resolved many disagreements in previous crises could prove elusive this time.
Banks may find themselves grappling with companies who are obliged to inform investors about the outcome of restructuring talks. Many companies have listed while promising to pay set proportions of their income to investors in dividends. That has left them without the umbrella of spare capital that more traditional, family-controlled companies would put aside for the kind of rainy day that has now arrived.
The question is how the distinctive circumstances of this crisis will affect its outcome.
“This is the first crisis that’s going to be played out in full public view,” Mr Slater says.
General Maritime, a crude oil tanker owner that once stood as an example of the benefits of public listing, illustrated the nature of the problems in partial results published late last Wednesday.
Because of its high exposure to the volatile, short-term spot market, the average rate earned by each of its vessels per day had slumped 34 per cent to $12,622 from the third quarter of last year. Such rates barely covered vessel operating expenses of $11,489 per day. Interest payments, however, rose 46 per cent from the same quarter last year, to $31.2m, deepening net losses from $24.9m to $55.1m.
Erik Nikolai Stavseth, an analyst at Oslo-based Arctic Securities, says such a squeeze between falling earnings and rising debt payments is typical of the most troubled companies.
“They are on the spot market in a bad market and have high levels of debt,” he says.
Yet few companies have a record of surviving such storms. Many were formed during the industry’s boom years to meet perceived investor demand for a specific type of shipping firm, rather than being existing enterprises that chose to list. Most are focused on only a single market segment, meaning they will be unable to take profits from a less badly hit area to prop up a struggling one.
Wilbur Ross, the distressed debt investor who bought a fleet of 30 oil product tankers earlier this year and plans to expand further in shipping, had decided after years of study to buy ships on their own rather than a whole company, Mr Slater points out.
“There’s a sentiment today that the companies themselves have little or no value,” he says. “The value is in the ships.”
That could prompt banks to seize debtor shipping firms’ assets rather than try to restructure them.
General Maritime, which cancelled a post-results conference call and avoided giving some key figures, could soon be providing a test case for the new approach. Withholding the information has fed speculation that the company might be forced, unless fresh funding is found, to seek bankruptcy protection within days.
That could continue the thinning out of publicly listed shipping companies which has been under way since Korea Lines, of South Korea, sought bankruptcy protection this year.
Mr Slater, who thinks the mushrooming of listed shipping companies encouraged the excess ship ordering that has led to the crisis, will shed few tears.
“I think we have a very jaundiced investor community, where a lot of money has been lost,” Mr Slater says. “They’re just not there to hear the story again.”