Lowest of the low

I will not hide it from you, dear reader, 2016 will be worse than last year. What surprises me is how unprepared companies have been for the crisis that has hit many sectors led by dry bulk and offshore. People did not prepare for the consequences. The scale and the speed of the current trough is down to too much overleveraging.

Bulker prices have nearly halved in the last 12 months as have offshore assets and plenty of owners tell me prices could still come off further.

The difference with where we are today compared to other cycles is that shipping’s downturn is in tandem with a banking one. Banking and shipping hitting the buffers at the same time is both very rare and very serious. This has brought a severe shortage of liquidity with very little backstop. As an owner, you need a good long term relationship with a banker to get any liquidity outside of newbuildings these days. Shipping is a bad word among bankers right now. What’s more, banks are in much worse shape than they are willing to admit.

And what of private equity? Seen as the saviour of shipping by some since 2009 – and destructive by others – the PE folk have had their fingers so badly burned from their maritime excursions that they will not be looking at this sector again in a hurry.

Another reason why 2016 will be so brutal for so many is that the key driver for so much trade growth since the start of this millennium – China – is in a bad state. The People’s Republic is not stabilising and I fear it could be in for major implosion.

Once again, my eyes glanced towards the back page of this magazine and the results of the annual Future of Shipping Poll, a vote that always tends to pique my interest. Nearly three quarters of you believe financing for S&P deals for small- to medium-sized shipping lines will be hard to get. From my discussions with countless owners I can confirm this is true. There’s myriad smaller Greek owners out there, for instance, who as their fathers and grandfathers have done in previous downcycles, are desperate to buy as ships are so cheap, but they are frustrated as their banks are either no longer in existence or are no longer dishing out cash. All this will lead to, in my view, is still lower prices.

As mentioned at the start of this article, in this toughest of tough years I do not apologise for not sugar coating my outlook this year – shipping’s bitter pill will kill off many more companies in the coming 24 months.

This article first appeared in Maritime CEO Issue One 2016. Readers can access the full magazine for free online by clicking here.