World Grain - December 2008 - 30

FEATURE: FREIGHT RATES PLUMMET

ther uncertainty for shippers. As many
as 20% of shipping lines are at risk of
breaching their loan accords because of
the plunge in asset values, according to
Tufton Oceanic Ltd., the world's largest
shipping-hedge fund group.
Heightened credit checks on counterparties, which are now a must for all in
the supply chain, may be a barrier to the
smooth flow of goods.
London, England-based Britannia
Bulk Holdings Plc has already been
placed into administration, and the
Ukraine's Industrial Carriers Inc. has
filed for bankruptcy protection. More
bankruptcies can be expected, which
will undoubtedly threaten charter parties as well as players up and down bulk
supply chains that rely on income from
ocean shipping, either directly or indirectly, including ports and hinterland
transport suppliers.
In short, at current freight rates, dry
bulk shipping is unsustainable for many
companies. However, there are signs that
the market could find a semblance of balance faster than many are predicting.
The bulk carrier orderbook over the
next four years is worth over $532 billion. According to World Yards, 26.27%
of these orders are due to be delivered
by greenfield yards in China, some of
which do not even exist yet.
With banks around the world tightening credit lines, a falling shipping market
will not be a priority, a financing fact that
will affect both owners and yards. So, it is
quite possible that many of these vessels
will not be built. "Newbuild activity has
already started to slow due to high yard
prices, the shortage of available berth
slots, less than promising trade prospects
and the lack of refund guarantees," said
Stonehouse. "It will be interesting to see
whether the green field yards in China,
which equate to 30% of the newbuilding
program, actually deliver."
None of the brokers contacted by
World Grain would predict how many
newbuilding orders will not materialize, but with little to gain from receiving delivery of vessels which cannot
be deployed at a profit, owners will be

doing their utmost to escape newbuilding contracts, even if they can afford the
purchase.
Nigel Anton, managing director and
head of shipping finance at Standard
Chartered Bank, said that the number
of traditional ship finance banks with
capacity to look at new transactions had
already diminished.

"Without doubt, the global lack of liquidity combined with the recent downturn in the dry and container markets
will affect banks' appetite for certain
ship finance transactions," he said.
"Those banks which are 'open' for
new business will prioritize the stronger
names, which has to have a negative impact on shipping companies with weaker

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For more information, see Page 82.

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World Grain - December 2008

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