BY C A R L Y FIELDS
DOMINO EF OF A COFECT L L A P SE D CA
T
his year may go down as the year that the downward spiral of the shipping industry was reversed, when it reached the floor and got back up from its knees, joints creaking from lack of use. The catalyst? The collapse of the world’s seventh-largest container shipping line, Korea’s Hanjin Shipping, expected to be the first high-profile casualty of prolonged depressed freight rates. While as a pure container carrier, Hanjin had no business on the project cargo side, its downfall was symbolic as it rubbished conventional wisdom that no large state-run ship operator would be allowed to fail. It also confirmed just how bad a state shipping markets were in. As the tower started to topple, the multipurpose, or MPP, sector was not immune. SAL Heavy Lift was undergoing “drastic structural reform” according to owner “K” Line, and family-owned operators Thorco and United Heavy Lift initiated a joint venture, Thorco Projects, to spread the burden of weaker markets. The fall of the first victim has been a long, uncomfortable time coming. Freight rates at record lows have plagued the MPP market, and
R R IER
attempts to minimize exposure through cost cutting and “sharing of synergies” have been all but exhausted. MPP ship operators have put freight rates down as much as 50 percent on last year in some particularly hard-hit regions. Freight forwarders and engineering, procurement and construction companies that rejoiced at sliding MPP freight rates at the beginning, are now waking up to the fact that shipping rates below breakeven in many cases are not healthy for the safety or the longer term prospects of the industry. Ulrich Ulrichs, CEO of Rickmers-Linie, said the shipping line now considers freight rates to be at an historically low level. Compared to the levels of 2011 and 2006, which were roughly similar, freight rates are now 30 percent to 40 percent lower. “Volume-wise some areas are stronger than others, but freight rates have dropped to the same extent globally. There are no specific regions where we currently can identify sustained, predictable and balanced growth,” Ulrichs said.
FLOOD OF FINANCING
The journey to this point has been characterized by a steady stream of restructured finance that has allowed the shipping sector to be propped up in spite of weaker demand. Kyri-
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