Shipping lenders are tightening rules on who their clients can trade with after the industry’s worst rout in at least 23 years.
Banks are threatening to cancel loans if ship owners do business with customers they perceive to be at risk of failing to honor contracts, according to the Baltic and International Maritime Council, whose members control 65 percent of the global fleet. That means some shipping companies are being forced into shorter contracts from a smaller pool of clients, said Peter Sand, an analyst at the Bagsvaerd, Denmark-based group.
The value of merchant ships plunged as much as 80 percent since 2008 as the industry’s biggest-ever building program created a glut of capacity. The vessels are typically used as collateral on loans. At the same time, banks curbed lending to set aside more capital following the global recession.
“Five years ago, you always called your shipbroker in the morning,” Sand said by phone Sept. 16. “Now you call your ship banker in the morning. If you do not sign up with blue chips, the banks might not approve your loans.”
The ClarkSea Index, a gauge of industrywide earnings, averaged $9,258 a day this year, the lowest level since at least 1990, according to Clarkson Plc, the largest shipbroker. The price of a five-year-old Capesize, which typically haul iron ore and coal, fell to $30 million at the end of November, from $153.5 million five years ago, according to data from Simpson, Spence & Young Ltd., a shipbroker in London.
The surplus of ships available to transport iron ore, coal and grains expanded to the biggest since at least 1986, Clarkson said in August. The glut of supertankers is the largest since the mid-1980s, according to Fearnley Consultants AS, a maritime research company in Oslo.
“Banks are imposing a degree of discipline on the market that doesn’t exist when times are good,” said Stephen Cogley, an attorney at Quadrant Chambers in London who specializes in trade and arbitration. “If you’re a blue-chip trading party with a low history of default, you may find that’s a very attractive proposition to be contracting with.”
HSH Nordbank AG said Sept. 20 it prefers shorter contracts so that ship owners can lock in higher rates later. “A very careful view on the quality of the charter is of tremendous importance,” especially for dry-bulk carriers, Christian Nieswandt, the bank’s global head of shipping for domestic clients, and Ingmar Loges, global head of shipping for international clients, said in a statement.
The Hamburg-based bank said Aug. 30 that its loans to the shipping industry fell by 1 billion euros ($1.35 billion) to 26 billion euros in the second quarter.
Deutsche Schiffsbank, a unit of Commerzbank AG, reduced its exposure at default in the shipping industry to 17 billion euros in the second quarter from 18.3 billion euros in the first three months of the year, according to a company presentation. Exposure at default is a calculation of losses in the event of borrowers defaulting.
“Like banks, borrowers are interested in charters with renowned partners and which cover the costs of loan servicing, provided that this is possible in the current market,” Commerzbank said in a statement. “Customers and banks have the same interest when making charters.”