Who will merge?

There were not the anticpated merges and bankruptcies the last couple of years
in the container business. Mostly because governments inter veined.

Let's see what happens in the next year.
Some people think there will be some..

From The Journal of Commerce

Lazard's Stokes says carriers are looking to cuts costs, expand market share

Further consolidation of container shipping lines is likely as carriers seek to cut costs, expand market share and bolster balance sheets, said Peter Stokes, senior analyst and head of shipping at investment bank Lazard.

“I believe that we will finally see a number of non-cash defensive mergers as companies struggle to remain competitive on the major east-west routes or seek to strengthen their position in north-south and intra-regional trades,” Stokes told the Marine Money conference in New York.

Container shipping survived 2009’s market slump, which produced more than $15 billion in losses, without major failures or consolidation. Stokes said, however, that container shipping and certain specialized sectors of shipping may be better candidates for mergers and acquisitions than commoditized bulk shipping companies.

“This is because these are businesses which are much more complex to operate, where greater synergies can be realized and where factors such as market share and long-term customer relationships can be a significant part of value,” Stokes said. “In the current, desperately poor, container shipping market, the arguments for consolidation for purely defensive reasons are hard to refute."

He said that mergers of large container ship lines during the last 15 years have been difficult to pull off but have shaved about 3 percent off the merged companies’ operating costs. “Cost savings alone … provide a compelling case for consolidation,” Stokes said.

Mergers and acquisitions also increase market share and can provide balance sheets with the “size and strength… to support the continued heavy investment needed in the next generation of larger and more fuel-efficient container ships.”

Stokes acknowledged that some mergers of recent years, such as the 1996 union of P&O Containers and Royal Nedlloyd, and A.P. Moller-Maersk’s 2005 acquisition of P&O Nedlloyd, proved more problematic than expected.

But he said the overall experience supports the case for further consolidation of container shipping. Maersk’s purchase of P&O Nedlloyd solidified the Danish company’s dominance in container shipping, and that the acquisitions by Hapag-Lloyd of CP Ships and by Neptune Orient Lines of APL eventually produced benefits that outweighed initial difficulties.

“In all of those cases… the immediate post-deal experience for the acquirers was difficult. And yet, all three companies have survived, and all three would say they are in a better strategic position now than they would have been had they not made those acquisitions.”

Hapag-Lloyd runs into more problems with financing

My, what a mess.

A few weeks ago, Hapag-Lloyd sold off some of their stake in a terminal, in order to secure financing.

Now, the German government thinks that wasn't very smart, and they want Hapag-Lloyd to buy it back, to use as collateral for the requested government bail-out.

I guess investors are thinking the only thing of value now is the terminal. That does not bode well for Hapag-Lloyd the container carrier.

From the Journal of Commerce

Germany did not accept terms of the rescue of container shipping line Hapag-Lloyd, Germany's Bild newspaper reported without citing sources.

Investors had tried to secure a $1.71 billion loan guarantee from the German government in a package submitted last month. But the government demanded collateral that shareholders couldn’t agree on.

Berlin said Hapag-Lloyd should buy back from its own shareholders, TUI and the Ballin Consortium, a 25.1 percent stake in the Altenwerder container terminal, according to the newspaper. That stake would be collateral for the loan guarantee

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click here for link

D'Amato is bust

They can sugarcoat it all they want, but it looks like D'Amato will be liquidated, and my best guess, closed down.

From Lloyd's List

John McLaughlin - Monday 27 July 2009

D’AMATO di Navigazione’s recent filing for bankruptcy court protection or concordato preventivo under Italian law is likely to lead to the liquidation of the company’s assets to pay off creditors, sources close to the operation said on Monday.

The procedure will allow the mortgage holders to get 100% of what they are owed and the other creditors 65%.

A spokeswoman for the company said the aim was to satisfy the creditors while maintaining the company as a going concern, though industry sources cast serious doubt on its prospects of survival.

click here for link

Ship values decline

The trustee handling the Eastwind Maritime bankruptcy is giving a bank possession of 6 ships for which they held the mortgages. The value of the ships is now less than half of the loan amount.

Tokyo Star Bank is owed $54.7m in mortgages on the chemical tankers and the 28,300-dwt bulker Yamaska (built 1985), but the ships are worth just $22.7m, according to court documents.

This takes care of 6 ships, but there is a bunch more...

Before its bankruptcy filing, Eastwind Maritime owned more than 70 reefers, bulkers, tankers, boxships and other vessels, according to legal records.

click here for complete article from Tradewinds

Ocean Carriers bankrupt or taken over 1980-2005

This comment in the Journal of Commerce article started me thinking

(In reference to the carriers whining they need higher rates)...

At issue here appears to be the ability of shipping lines to convince customers that if they do not pay increased rates, carriers will further downsize their services to save money, and shippers will face capacity constraints.

If the problem persists, bankruptcies and an unhealthy level of consolidation in the liner shipping industry are inevitable, carriers maintain.

I think all of the managers must be under 40.

Below is a list I came up with just off the top of my head.

Many liner carriers (meaning shipping carriers who offer regular scheduled service) have gone bankrupt. Obviously, today there is no problem with capacity or competition.

Whoever is speaking for the carriers need to study the history of the industry, before they open their mouths.

1) Seatrain 1929-1981

2) Moore-McCormick 1913-1982 click here for an account of their decline

3) United States Lines 1921-1992

4) Ivaran Lines 1902-1998 taken over by CP Ships

5) CP Ships 1884-2005 taken over by Hapag-Lloyd

6) Sealand 1960-1999 (Taken over by Maersk)

These are others I can think of, but many were National Carriers.

Libra
Argentine Line
Peruvian Line
Grace Line
Lloyd Brasileiro
Lykes
Pacific Australia Direct
FESCO
Delta
Costa
Farrell
Karlander Kangeroo


I may have to pull out my coffee mug collection to come up with other names.

If you can think of more, please note in comments.

Thanks

Daewoo Logistics Corp. files for bankruptcy

According to Lloyd's List

SOUTH Korea’s Daewoo Logistics has filed for receivership in the Seoul District Court, according to market reports.

Daewoo Logistics was much more than just a logistics company. They also (according to their web-site) were "rising into a General Carrier encompassing Car, Tank, Cement, with the center of Bulk Carrier".

I cannot determine if they owned or chartered their tonnage, as the fleet part of the web-site says "being updated" (no kidding).

It looks as if they got involved in too many things, without thinking there would be a downturn in international shipping.

Another one to add to the list of bankrupt companies.

Container carriers in trouble

The next six months will be crucial for the international containership carriers.

Consumer demand is not rebounding, and these type of products are the mainstay of container lines.

I have already stated I don't think CSAV will survive this downturn. They got a reprieve from the ship owners, but assuming things don't pick up (which I don't think they will), look for another refinancing, or takeover, sometime early next 2010.

CMA CGM is also having trouble. Their bonds have been downgraded so much they finally told the rating agencies to no longer rate their bonds. I guess it will be buyer beware.

And now, Hapag-Lloyd, having pulled off their partial sale to the founder of Kuehne and Nagel, Klaus-Michael Kühne, has seen a big drop in their share price. They must be in quite serious trouble as it is mentioned they might seek help from the German government.

This from Lloyd's List

Patrick Hagen, Cologne - Friday 3 July 2009
BAD news from Hapag-Lloyd put pressure on the share price of Tui, the German tourism and shipping conglomerate, today.

Tui is the largest single shareholder in the container line.

Hapag-Lloyd came under further pressure from major shareholder and logistics tycoon Klaus-Michael Kühne, who told German press that he would not rule out the line asking for government help.

Revealing the critical financial situation at Germany’s largest container carrier, Mr Kühne said it would “certainly make sense” to apply for state aid.

He added that the help would then have to be approved quickly.

Hapag-Lloyd did not comment on Mr Kühne’s remarks. The company said earlier that it was considering options to secure its future

If they don't get state aid, it's quite possible the other German container carrier, Hamburg Sued, would buy them, if the price were right.

I'm not saying any of these companies will go bankrupt (although they might), but I certainly think they are in danger of being taken over. There will be a big cash drain on all carriers for the next few years, and most just don't have to cash to survive.

Which shipping companies will survive?

According to Paul Slater, chairman and chief executive of First International, who was interviewed by Lloyd's List, the shipping companies listed in New York are now in the hands of "day traders".

He makes a very good point. I have been amazed at the activity and unreasonable price of Dryships stock, which Mr. Slater makes a specific reference to in the interview.

He also stated

MORE than half of the shipping companies with stock exchange listings could slide into bankruptcy or administration proceedings in the next year as their cash drains away.
.... forecast that the next 12 months would be “really painful” for the three main shipping sectors of containerships, dry bulk and tankers.

But those in NY are hoping to sweep away these concerns..

But Peter Shaerf, president of the non-profit New York Maritime and managing director of AMA Capital Partners, said shipping’s presence in New York’s capital markets had remained robust this year.

Trading volumes in shipping companies continued to increase, and $1.4bn had been raised in at-the-market or follow-on offerings this year.

The real problem is that most of the shipping companies continue to pay dividends, instead of trying to preserve cash. Investors are only looking at the dividend payments. This will catch up with them.

My money is on Mr. Slater

click here for article and video from Lloyd's List

Industrial Carriers Bankruptcy in question

Industrial Carriers Inc. filed for bankruptcy in October 2008.

This from Bloomberg

Industrial Carriers, based in the Marshall Islands and operating from Odessa in Ukraine, has sought protection from creditors, Michael Ivanov, a senior chartering officer in Odessa.

The shipper's operating office is in Odessa, with a financial office in Athens and representative offices in Shanghai, Moscow and Rio de Janeiro, the Web site showed. The bankruptcy filing was made in Piraeus, Greece, according to TradeWinds.

Since Sept. 26, Industrial Carriers has been sued or is suing other parties in 13 lawsuits in New York and London, according to legal filings data compiled by Bloomberg.

Oh - but not so fast.

Now, 5 months later, the Greek Courts say no,

The Piraeus court threw out the petition on jurisdictional grounds, finding that on the balance of probabilities ICI — which had offices in Ukraine, Greece and elsewhere — had its seat in Odessa rather than Athens, it has emerged.

The appeal filing includes “new evidence”, including greater detail of the Greek residency and background of two of ICI’s three directors, said its lawyer, Andreas Nassikas.

An appeal hearing has been scheduled for May 28 this year.

There's a lot more to this, which you can read in Lloyd's List, but this is my personal favorite.

Staff at the defunct chartering entity have claimed that moves by a handful of owners and charterers to freeze its assets cut short its efforts to settle with more creditors.

Surprise, surprise.

Understanding "Rule B attachments"

Back in January, I blogged about Armada filing for Chapter 15

Armada, a Singapore based carrier filed for Chapter 15. I had never heard of Chapter 15 until recently. Apparently it allows foreign companies to reorganize outside of the U.S., and protects them from U.S. creditors.

Recently I have been reading about "Rule B attachments", and the surprise some shipping companies got when suddenly monies were taken because of these.

Rule B Attachments are popular because they are effective. In Winter Storm Shipping, Ltd. v. TPI, the Court of Appeals for the Second Circuit held a Rule B Attachment can intercept and attach an electronic funds transfer (EFT) in the hands of an intermediary bank, including the New York Clearing House banks in Manhattan that process virtually all transfers of U.S. currency (or USD transfers) made worldwide. Because shipping industry transactions are generally in U.S. currency and usually pass through one of the New York Clearing House banks, Rule B Attachment proceedings have become exceptionally popular in the Southern District of New York (which includes Manhattan) where they now comprise approximately 30% of all new cases filed.

And, one way to avoid this is to file Chapter 15

Foreign companies can protect themselves through Chapter 15 of the Bankruptcy Code. Although Chapter 15 does not commence a full-blown bankruptcy case within the United States, it can provide a foreign debtor in an insolvency proceeding outside of the United States with certain protections, including the automatic stay, to protect assets in the United States. Specifically, a foreign shipping company that has commenced an insolvency proceeding abroad, may be able to stay all actions against it, including pending Rule B Attachments, by filing a Chapter 15 case soon after the commencement of its foreign proceedings. The Board of Directors of Armada (Singapore) Pte. Ltd. recently filed a chapter 15 petition in the Bankruptcy Court for the Southern District of New York for recognition of the company's insolvency proceeding in Singapore, for exactly that reason – to protect its assets against potential Rule B Attachments.

Dry Bulk carrier Atlas Shipping goes Bankrupt

Atlas Shipping is a Danish dry bulk carrier. They started out in 1996 and have used chartered tonnage to date, but have orders with ship yards for new buildings.

The market has collapsed, and they realize they will not be able to withstand it, even though their bank would probably give them more money.


From Lloyd's List, Dec. 18, 2008

Mr Moller denied that the company had lost the confidence of its bank, Den Danske Bank. “No that’s not the issue. The issue is we have been run over by the market.”

He also recognised that the vessel owners will be hit by the company’s bankruptcy. “Others will be hurt, that is the unfortunate truth,” he admitted.

“We have 41 vessels under our control right now and we want to do something positive with the owners. All the vessels are chartered in, so the owners will be hit, or the operator in between,” he confirmed.

The role of Atlas as a major charter was also underscored by a leading London broker.

“I think it will very much have an effect on the market as they are a major player. I don’t think it will affect rates but I expect quite a few ships will be delivered back to head owners.”

He said he couldn't be specific but Atlas would probably be two or three down a chain.

Guess maybe I should start a score card of the bankrupt steamship lines.
This could also very well cause a drop in the BDI (Bulk Dry Index).

Things are getting ugly in the world of international shipping. Well, for that matter, I guess in most industries. I guess maybe the repo guys are doing well.

German ship banker predicts more bankruptcies around the corner

As per Lloyds List article:

DVD Bank head of shipping, Mr. Dagfinn Lunde, said the downturn in shipping would be “deep and long”.

In two years’ time “we will have a crisis very similar to that of the mid-1980s”, which some experts believed was the worst ever experienced by shipping, he said.

“There will be many more bankruptcies,” Mr Lunde told the Lloyd’s Shipping Economist Ship Finance & Investment Conference in London.

What I found interesting is he believes container operators will go bust, in addition to dry bulk.

“You can see this from the leverage of the companies and the charter rates. It is a question of weeks and months.”

Some bankruptcies were “very close around the corner” and could involve big names in the industry.
Collapses would not only involve dry bulk operators, but also other sectors such as containership operators.

I can't think which container carriers are likely to go bankrupt. I guess some of the smaller ones. We'll have to keep an eye on that.