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32
June 2013
T
he global financial crisis, which
began in 2008, badly damaged
the shipping and bankrupted
many shipping companies.
hese that were able to survive and that
continue to survive today, have had to
face great difficulties.
After many years, for the first time,
growing ended in the shipping sec-
tor ended growing and it even shrank.
Younger vessels, too, no matter built
a few years ago, were not able to pace
with fierce competition and had to con-
tinue their voyages half-laden, most of
the time.
Prior to 2008, states and private
investors, in line with the growth, had
made major investments in enlarging
their shipyards, ports and businesses,
in renewing technologies and in human
element. Looking at the present situation,
however, on these investments seems to
be wasted.
Even many of the shipping companies
which had leading position in the sector,
and some banks, have had to walk on
the tightrope, unfortunately for some,
bankruptcy was inevitable. It seems that
the shipping industry became a a victim
of globalization, which was a source of
income once.
In 2011 and in 2012 some ship opera-
tors were unable to pay the charter fees
under their contracts, and some ship
owners were even unable to pay the sala-
ries of their crew due to the fatal domino
effect of the global financial crisis which
hit the shipping industry at utmost speed.
In this case, companies which had no
money in hand remained in a quite dif-
ficult situation. Failing of shipping com-
panies to make payments to the banks
started to be a problem for the banks and
therefore, the industry has blocked the
way for new loans creation.
In the very hard times of crisis, many
operators had difficulty in receiving let-
ters of guarantee from the banks, and
eventually missed many (already scarce)
business deals.
As banks did not extend the credit peri-
ods of manufacturers and trader compa-
nies, there has been significant declines
at raw materials and products prices.
As a result, trader companies initiated
the exchange of goods between them
in order to avoid the risks and transport
costs. Consequently; the absence of
cargo to transport put carriers in a further
more difficult situation.
The period in which shipping compa-
nies become unable to pay their debts,
resulted in the seizure of the vessels by
the creditors. In the event of a bank-
ruptcy, the lender normally sells the asset
at first opportunity, and mostly under
the market value, in order to recover the
majority of losses. Somehow it works a
little different in the maritime business.
Experienced maritime sector banks are
aware of the fact that the sector is a func-
tioning gear and prefer to wait until the
crisis is over; and then sell the ships they
seized at higher values.
This leads to a more difficult process
for the operators. After the crisis, ships
and fleets will be put to sale and this
will cause upward movement in prices
artificially. The only problem here is for
the brokers to estimate the exact value
of each ship at the normal market condi-
tions.
Under normal conditions, this negative
situation should re-order the market and
enable small-scale businesses to own
ships of larger tonnage, as a result of
downward movement of the ship prices.
However, the current exceptional situa-
tion, unfortunately, leads to the loss of
this traditional chance.
Looking at what has happened, it is
not too difficult to predict that realization
of optimistic expectations would take
quite a while. In this waiting period, if
financial institutions cease the financial
support that they provide to operators
and ship owners who managed to survive
after destruction, this certainly will block
their way. Current circumstances clearly
shows that, shipowners wanting to take
advantage of this weak situation and
to make a move forward should have a
strong capital base.
As of the moment, the tips of what
would happen in the future is apparent.
Sector had to go through these stages
before the markets recover and start to
move upward. Given a period of 18 to
24 months, it will not be surprising to see
the sector in the course of uprising.
Companies which has resources will
be able to take position for the rise of
markets and to get prepared. However,
some operators and ship owners appar-
ently will continue to complain about
the shortage of cash. The main reason
for this shortage would be the financial
sector which will not issue new loans due
to loans that not paid back on time or not
paid back at all. In Large-scale move-
ments of restructuring, loans and finan-
cial support will play an important role
in the maritime industry to overcome the
financial crisis.
As a result, the negative effects of the
economic crisis is in full swing and the
sector should be seriously concerned of
this situation.
Currently the industry has not yet
reached to a positive atmosphere.
Therefore, 2013 will be a difficult year
for the financial institutions, investors
and, ultimately, for the new owners to
decide whether to provide new loans and
decide about restructuring. Next year
could still be a dark year for such firms.
However, it should be noted that, a
person's loss can result in is another's
gain.
n
The Outlook and Problems in
Shipping
Süleyman Savaş