[190515.EN.SEA] Carrier Building Spree Produces US$80 Billion Debt Mountain

FEARS mount about the shipping sector's ability to handle its debt load - now US$80 billion - with its own money as it accumulates debt in a frenzy to build ever bigger box ships.

Maersk, MOL, OOCL and CMA CGM have all placed big orders, or been rumoured to be considering big multi-ship orders for container carriers in excess of 18,000 TEU, says Drewry Maritime Research.

"Investments in new tonnage have played a major contributing role in turning the fairly healthy shipping market six months ago, into a challenging one at present," said the Drewry report.

"Drewry believes the relentless influx of ULCVs [ultra large container vessels] into the Asia-Europe trade and the resulting cascading of over-sized vessels into secondary trades will continue to put pressure on the global index in the short term," it said.

The latest data from the World Container Index (WCI) showed that the benchmark rate for Shanghai-to-Los Angeles trade dropped to US$1,578 per FEU, the lowest level in more than three years. The last time the sector saw such low rates was in 2011.

"Order frenzy not only creates significant capacity over-supply but also financing issues," said WCI in its report. "We believe, as the industry is still reeling under high debt only the strongest players with healthy balance sheets will be able to successfully finance ULCV orders with their own money."

Source : HKSG.