Shipping study: Three quarters of respondents expect charter rates to decline further in the next twelve months

• Survey among charter and line shipping companies, issuing companies and banks
• 75% of respondents think another slump in charter rates is probable within the next twelve months – Bulkers and multi-purpose vessels (MPV) are particularly hard hit
• Line shipping companies expect the markets to further stabilize and rates to reach 2008 levels again in 2011
• Market recovery to pre-crisis levels is not expected before mid-2011 for MPVs, 2012 for containers and tankers, and late 2012 for bulkers
• Competition and market concentration will continue to intensify
• Charter companies are expecting ownership structures to shift abroad and are putting their hopes on special-purpose vessels. Line shipping companies are hoping for economies of scale through alliances

The German shipping industry has not yet fully recovered from the crisis. Most players expect charter rates to drop again in the next twelve months. This is the result of a survey by Roland Berger among charter and line shipping companies, issuing companies and banks. The respondents represent more than 1,000 vessels, more than EUR 3 billion in equity issued in the past five years and total loans of more than EUR 80 billion. The key finding is that most respondents think the situation is especially critical for bulkers and MPVs, but container vessels and tankers are also affected. They do not expect the market to recover to pre-crisis levels before mid-2011, and bulkers will not recover before late 2012. The respondents all say that competition and market concentration will continue to intensify. Shipping companies are planning different responses: charter shipping companies are expecting increased competition from other countries and will focus more on special-purpose vessels. Line shipping companies, on the other hand, will focus on economies of scale based on alliances. Vessel financing is facing radical change: shipping funds have slumped, and banks have massively stepped up their equity requirements.

"During the crisis, transport volumes dropped by 5-10%," says Nils von Kuhlwein, Partner in the Corporate Performance Competence Center at Roland Berger Strategy Consultants. "Although net freight sales have recovered much more quickly than anticipated, most of the charter shipping companies we talked to expect charter rates to drop again in the next twelve months." For bulkers and multi-purpose vessels (MPVs), more than 75% of respondents think there is a risk of charter rates falling again. "Industry experts think that containers and tankers have the best market prospects," says von Kuhlwein. "But here, too, more than 60% take a conservative view of the situation."

The respondents expect MPVs to recover from the crisis the fastest and get back to pre-crisis levels (of late 2008) as early as mid-2011. Charter rates for containers and tankers, they say, may not do so until 2012, bulkers not before late 2012.

Further market consolidation and fiercer competition

Charter and line shipping companies, issuing companies and banks are all expecting market consolidation and competition to increase further.

Shipping companies: Cutting costs or maintaining the status quo

The crisis has led to liquidity bottlenecks at shipping companies, to which most line shipping companies have responded with cost-reduction actions – especially in terminals, transport costs and bunker. To prepare for the next crisis, these companies are relying mainly on higher liquidity reserves and tighter cost control. In contrast, the charter shipping companies have taken only limited operational actions to cut costs, and instead have concentrated on financial actions, such as liquidity management and payment deferrals. The charter shipping companies surveyed see only a limited need for strategic action. As von Kuhlwein puts it, "This suggests that the majority of the charter shipping companies are going to be hanging on to the status quo."

Ship financing about to take a nosedive

In the crisis, the placement of shipping funds plummeted. At best, investors are currently still ready to invest in bulkers or special purpose vessels. The issuing companies have overcome the crisis primarily through payment deferrals. For this reason, they are looking to operational actions such as intensive controlling and building up their liquidity reserves. Strategically speaking, they want to expand their market share and position themselves in niche markets.

"The banks we talked to all still had deep scars on their balance sheets from the crisis," says von Kuhlwein. "At the moment, about 29% of their shipping credit portfolio is in workout, i.e. in restructuring or liquidation – this adds up to about EUR 23.7 billion." Regarding the actions their shipping industry clients took to combat the crisis, the banks are predominantly dissatisfied. In particular, they see a need for action in liquidity management, operating costs and strategic moves. Equity requirements have risen considerably, especially in financing for container ships. The survey respondents believe future equity rates of more than 50% to be thoroughly realistic. This applies first and foremost to charter shipping companies. "Due to the crisis, the terms under which banks grant shipping loans have permanently changed," says von Kuhlwein. "In the future, tough collateral requirements such as account pledges or credit insurance will become more and more important. In contrast, guarantees from the federal or state governments will become less important."