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Shipping Rout Seen by S&P Spurring Defaults Within Coming Months

Shipping defaults will increase in the next few quarters after charter rates for the merchant fleet plunged and banks imposed tougher lending conditions, according to Standard & Poor’s.

Rates for vessels have slumped to between 30 percent and 80 percent below their 10-year average, S&P said in a report today. Rising fuel costs are curbing earnings and ships ordered during the industry’s boom years are joining the fleet at a time when global trade is subdued, it said. Those market conditions are lowering the value of assets and discouraging lending, according to the ratings agency.

The ClarkSea Index, an overall measure of daily vessel earnings, averaged the lowest on record in February, according to data from Clarkson Plc (CKN), the world’s largest shipbroker. The market for the biggest tankers is in a “state of panic,” Frontline Ltd., the owner led by Norway-born billionaire John Fredriksen, said yesterday.

“We think further shipping company defaults and financial restructurings are likely over the next few quarters,” S&P analyst Izabela Listowska said in a report today. “We expect asset values and the performance and credit quality of shipping companies to remain weak.”

The global fleets of container ships and vessels transporting coal, ore and grains both doubled in size over the past decade, according to S&P. The supply of oil tankers expanded by 50 percent, it said.

The Baltic Dry Index, a measure of commodity shipping costs, averaged 796 this year, the worst start of its kind since at least 1985, according to the Baltic Exchange in London.

To contact the reporter on this story: Alaric Nightingale in London at anightingal1@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

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