Analysis by Drewry
Orders for big container ships are gaining momentum. How are the lines, many of whom are still in serious debt, able to both finance and pay back the mortgages on these new assets? Drewry Maritime Equity Research investigates.
Lines are making considerable investment in the industry but where is the money coming from?
The third-quarter of 2014 was the most profitable for the container industry since the same period two years earlier. More carriers were able to return a quarterly profit as peak season demand exceeded expectations, which in turn helped to lift average unit revenues by around 2.5% against the second quarter.
However, while the financial health of the industry is improving there is still a long way to go. Record losses in the past five years and constrained operating cash flows have seen the industry pile on excessive debt, not only to finance their order books but also to raise expensive short-term capital to finance their working capital needs. Meanwhile, the operating cash flow has remained extremely weak since the onset of the global financial crisis, barring 2010 when the carriers enjoyed the fruits of an unprecedented demand surge, led by restocking.
Further analysing the industry financials for listed carriers on a top-down basis paints a grim picture with industry debt still exceeding $80 billion (see above figure).
It is not only the operational stress that the carriers have to deal with: the adverse effect on their financial positions leaves them in a precarious position, as ballooning debt and extended periods of negative cash flows exert serious strain on their business viability.
Source: Drewry
