Friday, February 19, 2016

CONTAINER LINE RATE COLLAPSE CONTINUES

How long till bankruptcies?


Freight Investor Services
LEADING THE WAY IN FREIGHT AND COMMODITY DERIVATIVES

Rates continues downward inflicting more pain on carrier financials.

After a week-long break due to the Chinese New Year rates were back into their usual downward trend with those to North West Europe declining $99 to $332 TEU.

With the latest decline rates are now 67% lower than the corresponding period last year. Carriers had planned to implement a GRI of around $900 on March 1st however this has now been pushed back to the 15th suggesting that utilisations are not strong enough to support such an increase.

With rates quickly approaching their all-time low of $205 TEU, carriers will be hoping that by the middle of March they can implement at least a partial rate increase, although this remains anything but certain at this stage.

Elsewhere rates to the South American east coast have hit rock bottom falling to just $99 per TEU, their lowest ever level.

In the on-going saga that is HMM, it’s been reported this week that senior management have hinted to owners and operators of ships under time charter to HMM of the company’s collapse.

The Loadstar reported that a letter, dated February 1st and signed by HMM chief executive Paik Hoon Lee, said “It is critical to understand that HMM’s financial difficulties cannot be solved by dealing with its financial liabilities alone. Unless time-charter payments are significantly reduced as well, the company cannot survive.”

The letter was released prior to the confirmation that both KB Financial Group and Korea Investment Holdings have sent letters of intent to buy a controlling stake in Hyundai Securities. The 22.6% stake is reportedly worth KRW 300bn (USD 250m) and could provide a much needed boost to cash reserves. It’s also understood that Hyundai Group chairwoman Hyun Jeong-eun will stump up KRW 30bn (USD24.4m) of her own money in an attempt to prop up the company.

It’s clear that the Korean line has been scrambling to raise cash as it looks for some short term relief from its liquidity woes, however the revelations from senior management as to the gravity of the situation will do little to appease any nervousness there may be in regards to whether the liner should be treated as a going-concern.

The big test for the company will be at the end of April when it will be required to repay debt of KRW 220.8bn (USD 182.2m) followed by a further repayment of KRW 299.2bn at the end of July.

It may not be an immediate priority for some carriers, however those active in the FFA market are able to secure a premium to current spot levels thereby reducing their exposure to declining rates. By securing cash flows in advance they then may be better placed to service future commitments, thereby avoiding the liquidity crisis that HMM reportedly finds itself in.
SCFI
Sources: Shanghai Shipping Exchange