Business | Shipping
Channel Sponsor
Meltdown forces lenders to pull the plug on the shipping sector
Every ship that enters the port of Hamburg must pass the expansive window of Hermann Ebel's modern office on the banks of the river Elbe.
- By Chris Bryant/Financial Times
- Published: 23:51 December 21, 2008
Every ship that enters the port of Hamburg must pass the expansive window of Hermann Ebel's modern office on the banks of the river Elbe.
This commanding view of one of Europe's biggest container terminals puts the owner of Hansa Treuhand in a good position to discuss how the financial crisis has affected German shipping.
"It has always been a cyclical industry but we've experienced an economic slump in just three months. The speed is very dramatic," says Ebel, whose shipping finance company controls a 70-strong fleet of mainly container vessels.
As liquidity has dried up and trust evaporated, banks have refused to write the letters of credit vital to the shipping of bulk goods.
Some container ships have been forced to carry lighter loads while bulk cargo piles up in ports around the world, particularly in east Asia.
As one of the world's most important shipping nations, Germany is particularly vulnerable to these problems.
German companies own 36 per cent of the world's container ship capacity, while the country's banks are responsible for about 40 per cent of global shipping finance.
This latter activity has ground to a halt as demand for new vessels slumps and German lenders grapple with the turmoil in financial markets.
HSH Nordbank, the world's largest shipping lender, was forced to seek up to 30 billion (Dh153 billion) in loan guarantees from the government's banking rescue fund and is set to slim its balance sheet as part of a restructuring.
Several other Landesbanken - regionally owned public lenders - are also heavily involved in shipping finance and lending could contract further.
"I am not sure how much shipping finance will be available next year," says Christian Hennig, head of shipping credit at MM Warburg, a Hamburg-based private bank.
Germany's strength in container shipping is due in part to an innovative funding model known as KG finance, which spreads the costs of shipbuilding by giving private investors tax incentives to buy equity stakes in such projects.
German shipping KG funds last year attracted about $5.6 billion of equity, according to Clarkson Research Services, a maritime database company.
Yet this model has come under pressure as anxious investors hoard cash and demand for shipping charters falls, forcing some companies to lay up vessels.
For those shipowners able to renew their charters, lower rates are barely covering the cost of operating vessels. Particularly worried are shipowners that have placed orders for a new generation of super-sized container vessel due to come into service from 2010.
Such companies are likely to try to delay or cancel these projects - possibly forfeiting hefty deposits - in order to avoid taking possession of ships they cannot charter.
Although Hansa Treuhand is expecting the delivery of 11 ships in the coming years, they are relatively small and most already have contracts.
Investors' exposure to lower charter rates will be limited, the company says, as most invest in pools rather than single vessels.
Shipowners emphasise that not all is gloom and doom, notably in the tanker markets where charter rates have held up.
Optimism
People in the industry say Hamburg's terminal operators are almost grateful for the respite after months of operating flat-out. Moreover, shipping companies are confident that the financial crisis will not mark the end of globalisation and the rewards it has brought.
"Notwithstanding the current economic deterioration, in the long term world trade and the shipping industry have an excellent future," says Hans-Heinrich Nöll, head of VDR, the shipowners' association.
Share this article
More from Shipping
More from Business
Popular in Business
-
Budget travel
Airlines in the region
Take a pictorial look at some of the budget airlines in GCC
Business Editor's choice
-
Experts seek solutions to global gloom
Suggestions formulated in Dubai will feature in next year's WEF
-
Qatar benefits from diversification
Doha's readiness to look beyond hydrocarbons as a growth engine bodes well
-
When the Web lives worldwide
Cutting-edge firms are building massive data facilities all over the globe
