* Funding costs likely to rise for ship owners
* Nordic banks to remain lenders to sector
By Jonathan Saul
LONDON, March 29 The global shipping sector is
expected to face oversupply pressures until 2014 and a growing
credit crunch will continue to hamper bank lending to the
industry, Fitch Ratings said on Thursday.
Ship owners went on an ordering spree between 2007 to 2009
bolstered by earnings as rates in the bulk sector for larger
capesize vessels, which carry iron ore and coal cargoes, reached
a peak of over $230,000 a day in 2008 and over $180,000 a day
for crude oil supertankers.
Average capesize earnings have slid to just under $5,000 a
day this week, below operating cost levels, while supertankers
have hit just over $36,000 a day, above operating costs.
"Combined with subdued growth in global demand, there is now
significant overcapacity in the industry," the ratings agency
said in a sector report.
"Fitch expects industry overcapacity to continue until 2014,
when increased scrapping rates, reduced ship order books and an
improvement in global demand should bring the market closer to
Earlier this month Moody's said it expected the global
shipping slump to last well into 2013, while Standard & Poor's
expected the dry bulk sector to be the last to recover after
tanker and container markets.
Shipping firms, especially in dry bulk, already hit by
economic turmoil, weak earnings and oversupply now face tighter
financing as banks cut their exposure to risky and dollar
denominated assets such as ship finance to meet tougher capital
"The shipping industry downturn, combined with a range of
factors putting pressure on the banking sector as a whole, has
increasingly led to banks pulling back from the industry. Fitch
Ratings expects the downturn to continue until at least 2014,"
"Fitch expects impaired loans and impairment charges
relating to ship finance to remain at heightened levels or
increase somewhat in 2012 and 2013."
ASIAN BANKS ACTIVE AT HOME
While European banks have been aiming to scale down their
shipping exposure to meet stringent capital requirements, rivals
in Asia have been looking to boost their activities.
"The Asian banks are currently mainly active within their
home region, and significant global expansion is unlikely in the
near term due to the unfavourable market conditions within the
segment," Fitch said.
Nevertheless, Fitch said banks not hit by dollar-funding
gaps or a need to scale back exposure to heavy industry could
enjoy potential opportunities.
"Well-capitalised banks that are in a position to continue
providing ship lending will benefit from much lower competitive
pressure within the market," it said. "Such banks, which also
have more long-standing relationships with the shipping industry
and are based particularly in the Nordic region, are benefiting
from other banks withdrawing from the sector."
Fitch said tighter bank lending meant financing alternatives
were being explored, adding private equity funding remained an
expensive option for ship owners due to the higher returns
demanded given the tougher market conditions.
"Public equity financing for ship companies is another
option that is likely to attract investor interest but is in
practice unattractive to ship owners due to the perceived risks
in the sector pushing market prices down," Fitch said.
"Bond market funding has grown, particularly due to the
variety of available instruments affording the ship companies
greater flexibility. As with equity financing, however, bond
pricing is affected by the high amount of risk within the
(Editing by James Jukwey)