Shipping Firms Face Bank Debt Rebellion

Shipping industry experts are concerned that distressed shipping companies face vessel seizure threats as banks lose patience with the industry that is battling with overcapacity and falling demand. Unfortunately, shipping companies, especially in the oil tanker and dry bulk sectors, have already been burdened by economic uproar, weak earnings, and an oversupply of vessels.

Until recently, banks have been fairly supportive in providing extensions and deferrals. However, now lenders are being pressured to cut chancy and dollar-denominated assets, like ship and trade finance, to meet stricter capital rules.

An increase in arrests, foreclosures and forced asset sales are being deemed as inevitable. An arrest occurs when a ship is detained by a court order to secure a maritime claim. The arrest may ultimately result in a judicial sale of the ship to pay the claim.

Ship asset recovery firms are preparing and have reported talks with numerous financial institutions over repayment options, including arrests. Data shows that this number will only increase as the year goes on. According to Reuters, industry sources say many banks are looking at finding other ways to recoup loans, which include working with the owners to sell vessels. Private equity firms could also step in.

Bankers say foreclosures and forced asset sales come with a risk, given depressed ship values. Both new VLCCs and new capsize dry bulk vessels have fallen by millions in price. The same effect is seen is the second-hand or used shipping market as well. For example, in 2008, a five-year-old VLCC was an estimated $160 million where it is now valued at just under $60 million.

For most, ship arrests remain the last option.