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The risk of another major ocean carrier bankruptcy has grown with the worsening global economic outlook, liner consultancy Alphaliner said today.

It explained that the unprecedented amount of capacity withdrawn in April and May, a result of a collapse in demand, “will hurt carriers’ operating cashflows and further weaken their fragile balance sheets”.

Picking up on the carrier Altman Z-scores, as at the end of December last year, for the 11 largest lines that publish results – excluding Japanese merged carrier ONE – the consultant painted a gloomy picture of the financial health of the liner industry.

Altman Z-scores are a measure of the likelihood of insolvency for a container line, and range from lower than 1.8 as “very high”, to 3.0 or higher as “unlikely”.

Four carriers – Hapag-Lloyd, Maersk, OOCL and Wan Hai – had Z-scores of 1.72 to 1.92 points, with a score of 1.8 to 2.7 regarded as a ‘high risk’, according to the index. And, worryingly, the other seven carriers had scores of less than 1.3.

“Carriers with track records of negative earnings are also particularly at risk, with three carriers’ Z-scores – HMM, Yang Ming and Zim – lowered due to their negative retained earnings,” said Alphaliner.

“Since the end of March, credit rating agency Moody’s has changed the credit outlook for Hapag-Lloyd, Maersk, MOL and NYK from ‘stable to ‘negative’ and placed CMA CGM’s credit rating ‘under review’ for potential downgrades,” it added.

It said Moody’s had highlighted the high dependency of carriers on world trade and industrial and consumer demand, which would all be negatively impacted by Covid-19 restrictions.

Just above HMM, Yang Ming and Zim on the Altman Z-score sheet is Singapore-headquartered Pacific International Lines (PIL), which has only just published its financial results for 2018 and the first half of 2019, recording a net loss of $254m for 2018 and a loss of $35m in the first six months of last year.

The carrier also published a statement strongly refuting “false claims about a potential bankruptcy”, and said it reserved the right “to pursue legal action against those who generate these defamatory rumours”.

PIL withdrew from the transpacific tradelane in March, sold six 12,000 teu ships and has also sold its Pacific Islands shipping line, PDL, in a significant downsizing of its liner activities.

The sudden bankruptcy of Hanjin Shipping in September 2016, at the time the seventh-ranked global carrier, resulted in over 500,000 containers being stranded around the world on the South Korean line’s more than 100 owned and chartered ships. The carrier’s alliance partners were also affected and their customers’ boxes delayed by the arrest and liens placed on Hanjin’s assets.

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  • Gary Ferrulli

    April 15, 2020 at 4:29 pm

    This doesn’t consider that 4 Asian countries subsidize their container carriers, plus three their shipbuilding. Korea now is recovering from allowing Hanjin to go under and is rebuilding HMM to take their place and won’t let it happen again. Then the question of France and CMA-CGM. So while the numbers may relate to normal businesses, it’s not the world container shipping is in.

    • Jon Pierre

      April 15, 2020 at 5:57 pm

      I personally think it will be HMM. HMM had the higher debt ratio than hanjin.
      The only so called saving grace with HMM was that they claimed they had a NDA with 2M. When this was scrutinised, it wasn’t worth the paper it was written on.
      Perfect for the 2M, a 2 carriers are removed from Asia Europe (Hanjin & HMM for a period of time). Yet they get more allocation on the Transpacific Trades.
      3 Years on HMM are kicked out again. Scratching for Asia Europe business, when everyone is blanking sailing, cutting loops.
      HMM can try to rebuild, however our clients are refusing to utilise their services.
      You never know which company will go down.

      • Ale Pasetti

        April 15, 2020 at 6:38 pm

        So South Korea, in your view Jon Pierre, will remain without a flagship ocean carrier if HMM goes under? Doesn’t seem very likely, does it?