Revisiting the impact of the 2008 financial crisis on the shipping industry

The rebound from the 2008 financial meltdown has been the best bounce back on average in the post-war period for large corporations, but most shipping stocks have stabilized at low levels with only a few companies making full recovery. Because their smaller would-be competitors are still having more trouble accessing credit, big companies have done disproportionately well. This is particularly true of the shipping sector and the Greek market.

Back in the fall 2008, tankers were faring comparatively better than dry cargo and containers. Dry cargo staged a remarkable recovery on the back of the Chinese stimulus program in 2009. Tankers, initially supported by storage demands and phase-out were hit hard from the 2nd semester 2010. Dry bulk started to feel some pain in summer 2010. 2011 started very badly for this sector with the orderbook overhang and the Korean Lines bankrupty. Conversely, containers - after massive losses and a dismal year in 2009 - staged a remarkable recovery in 2010 first primed by slow-steaming and then a pickup in headhaul Far East export routes, especially the Asia to the US transpacific route.

Structural changes are evident. The publicly listed company model - strongly resisted by some family shipping die-hards in Greece - proved resilient. Not only did the model offer salvation to laggards by recapitalization through ATM follow-on share offerings to cure bank covenant violations from investing in over-priced vessels and taking on high debt levels, but it also allowed the leaders to raise funds more flexibly and effectively to expand their fleets in a damaged financial system  at lower asset prices and financial cost than their competitors.

Major international shipping banks have tightened on their age criteria for vessels to be financed making CAPEX a higher ticket item for fleet renewal. Smaller companies, especially local Greek operators with older tonnage are dependent on domestic Greek banks and face difficulties in rolling over their fleets and moving to newer vessels as credit has dried up with more bank resources going to assist the ailing Greek public sector rather than productive private investment.

The shipping sector may not be out of the woods yet.  All shipping investments are highly dependent on future growth in Far East emerging economies - particularly China - to bring rates to better levels for acceptable investment returns. Any slow down in the Far East would lead to a situation of attrition for overly stretched financial laggards anxiously waiting for market recovery before the next round of covenant extensions with their lenders.

The orderbook overhang situation will continue to depress rates. Added to this problem, higher bunker costs from the rise in oil prices are again eroding earnings margins.  Financially stronger, larger companies will be looking to assert their strength and push for more industry consolidation.

Each company and shipping sector must be carefully examined on its merits.