Global ship operators face refinancing and default risks

In its report, “Global ship operators scramble for liquidity to stay afloat”, the organisation states that in an industry that is highly sensitive to economic conditions, ship charter rates have fallen to between 30% and 80% below their 10-year historical average in parallel with declining economic activity.  High operating costs, particularly fuel, are also depressing earnings.

In addition, a lack of supply discipline means operators accelerated ordering new vessels when shipping markets flourished; these vessels are now being introduced at a time when trade demand is subdued.  Over the past 10 years, the global container ship and dry bulk fleets have more than doubled, while the tanker fleet has grown by more than 50%.

The report goes on to say that operators are finding it increasingly difficult to raise capital for new ships and to refinance existing loans.  “Banks, faced with their own financial difficulties and a riskier shipping industry, are imposing tougher conditions for lending and charging higher premiums,” states S&P.