A sign of the times

Malcolm Latarche
Malcolm Latarche

07 October 2016


There are many old hands within the shipping industry that remember the days when shipping companies took a more measured approach than has been the case in more recent times. Specifically, if a shipping company wanted to invest in new vessels it stashed cash away in good times and raised the little extra needed either from shareholders or by sale of older ships. Banks and finance houses were rarely visited for loans and bonds as they are today and taking ships on bareboat or time charter was something done only to cover a temporary lack of owned ships rather than the basis for building an operational fleet.
This week, Bloomberg reported that Hanjin Group chairman Cho Yang-ho blamed lack of creditor support for the collapse of the Korean operator. “We believe Hanjin Shipping’s troubles could have been avoided if creditors had provided support,” Cho said. “We had submitted to creditors a plan to inject 500 billion won ($451 million) into Hanjin Shipping over a two-year period.”
Cho may be right about the possibility that the company may have survived but for how long would be anybody’s guess. There are few if any container lines today that are operating in positive territory and the root cause for that is well known. Companies have found it far too easy to borrow to build ships that were never needed. Blaming creditors for looking after their own interests may get some sympathetic agreement from other ship operators in similar positions but is hardly the attitude needed to build robust and successful businesses. A little bit of old fashioned discipline and operators building on their own success rather than borrowed funds would have meant that shipping’s current troubles would likely never have occurred. In fact it could be argued that with oil prices and bunker costs well below what they were just four years ago, 2015 and beyond should have been a golden period for the industry – except perhaps for the offshore sector. Even outside of shipping, reliance on things such as hedging, derivatives and other dubious financial shenanigans has caused a global crisis and everywhere the chickens are coming home to roost. It is highly likely that nothing at all will be learned from the current problems – after all the world has lurched from one financial crisis to the next with monotonous regularity ever since the South Sea Bullbe of the early 18th century – but unless some caution returns to the industry rather quickly the current woes will only get worse.