Thursday, August 23, 2012

Chinese Ghost fleet sinking rivals

Earlier we had discussed the appearance of a Chinese Ghost Fleet. They are the previously unseen Chinese coastal shipping vessels released into the greater market place when Chinese shipping demand plummeted. The effect of the imploding market continues.

Lenders hold fire on ailing shipping firms (gated)

Keith Wallis, South China Morning Post, 13 August 2012 (hat tip: NC)

Sanko Line, Korea Line and subsidiaries of Berlian Laju Tanker are among a steady stream of Asian and Western shipping companies that have sought bankruptcy protection in recent months, victims of weak freight rates and hemorrhaging cash reserves. But the expected surge in corporate shipping failures has yet to occur, despite mounting losses and the prospect of lower freight and charter rates this year....
"Banks are better off rescheduling debt with existing operators rather than [taking] over and [selling] the ships," he said. "A lot of banks can't afford to take a hit," especially with the ongoing European debt crisis and new liquidity rules impacting on banks.

So there is an uptick in shipping company bankruptcies, but the last thing the banks need is to be trying to recoup loans with assets that are plunging in value. It will force them to take their losses at a time when European defaults are already stressing their balance sheets.

It is very similar to why you cannot bailout the banks by paying everyone’s mortgage for them. Without the interest payments to cover their existing losses, the banks will be deeply underwater. So they kick the can down the road.

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