Bringing Shipping challenges to the surface
Deloitte RS Sector Outlook Series
What sectors will face the biggest challenges in 2016/2017 in the UK & Europe? This series offers industry insights, real time updates, analysis of the market and key considerations for stakeholders to emerge stronger.
Three of the biggest challenges facing the shipping sector
The Shipping sector in the UK is experiencing significant change which presents a number of challenges;
- Supply/demand imbalance - Global fleets are continuing to grow due to orders placed in 2008 coming into the market, despite demand plateauing due to slow global growth
- Lack of liquidity - As banks are forced to curtail their lending capacity, shipping companies need to explore alternative financing options
- Increasing operating costs - Operating costs including crew wages, hull and machinery insurance, dry-docking, repairs and maintenance are on the rise.
Key considerations for owners & operators
- Increase operational efficiency, particularly around bunker management, procurement and asset utilisations
- Fix balance sheets, reduce debt where possible and divest non-core assets
- Better manage cash and working capital
- Change governance processes and transparency to make the business more attractive for financing.
Key considerations for lenders
- Refinancing through traditional bank channels will likely become more difficult as we see lenders divest their shipping interests.
- Government desire to support national industries is wavering particularly where there are other national operators to take up some of the operations and assets.
- Bondholders are likely to play an active role in any standstill or restructurings
- Divestment of traditional bank lenders could lead to opportunities for hedge funds
- The industry has begun to recognise the need for fundamental, underlying structural issues to be addressed through a proper, focused restructuring process.
"We can see another round of significant restructuring negotiations between operators, their lenders and the broad range of stakeholders, as liquidity once again becomes a major issue, but an increasing number of insolvencies (whether at an operating company level or through vessel arrests) appear likely.
"For lenders, keeping a close eye on operations is critical and portfolio sales or loss-sharing arrangements may again be the order of the day. For the borrowers, in an industry with a growing demand/supply imbalance, operational efficiency and active stakeholder management will be critical."
David Soden, Shipping Lead
About the series
There is a high level of uncertainty across the globe as markets falter and the threat of geopolitical issues loom. With the Chinese economy at risk of a crash; the continued impasse in the oil sector; an uncertain future for the EU; and implications of ongoing conflict in the Middle East, the macro economy looks set to present challenges for economic growth in a number of sectors.
The Deloitte RS Sector Outlook Series brings to the surface the sector challenges facing both UK and European companies over 2016/2017.
Working with Deloitte industry experts, we are identifying which sectors face the biggest challenges and what risks and opportunities these present for you, our clients. We also identify key characteristics and indicators to help you assess your investments.