It’s been an interesting year.  Many of us began 2009 forecasting the imminent collapse of weaker players in the shipping sector, but somehow, but by what looks in some cases like the skin of teeth, most reports of corporate demise have been, as Mark Twain put it, exaggerated.  

In some ways there has been the feeling of the ‘phoney war’ in 1939, when war had been declared, but nothing seemed to be happening.  Today, the stresses are still there – atrocious freight rates, a horrible chartering climate, and calls for help from a number of big names.  CSAV is old news, but we have seen the mighty CMA-CGM falling at least to its thighs if not its knees with big changes at the top level of management and sightings of the begging bowl being proffered to the government.  Zim is less important on the global shipping stage, but its troubles are well publicized and it seems astonishing that it has been shored up in order to bring even more massive losses to its shareholders and probably the Israeli government.  Basically we have seen cries for help and rescues in 2009 but no really serious collapses – yet.

Except probably in the niche, coastal and regional trades, there is hardly a shipping company that will be feeling the full bloom of health at the moment.  A company with a modern fleet, unencumbered, with good reserves and a strong customer base might be feeling more sanguine about things.  But no-one really expects the doldrums to come to an end very soon, with the unpleasant prospect of new buildings continuing to come onto the market over the next few years at a rate likely to put paid to any hesitant moves towards recovery.

So why have there not been more collapses?  Some say that it is partly to do with last year’s book values of vessels.  As 2009 year end balance sheets hit the files they will show dramatically down-valued assets across the market.  Loans that till now have been on paper secured against equivalently valued assets will suddenly be showing alarming evidence of negative equity. What will happen then?

Well, despite world-wide complaints that banks are not giving credit to smaller businesses, in the case of shipping it is likely that acute self-interest may be keeping (and will possibly continue to keep) insolvent ship operators afloat.  There are probably people in the ship finance banks who remember how dreadful it was in the mid 1980s when bankers suddenly found themselves ship owners as they foreclosed on bad debts and pulled the plug on toxic credit.  Great news for the ship managers – Acomarit, then an independent company, did well as banker ship owners put their new and unplanned-for unwanted assets under management in the hope that they could be sold later when ship prices went up again.  This time around, so far, the banks seem to be continuing to support the owners – conceivably on the grounds that it is better to support someone who knows how to work an asset than have to operate it yourself.  Maybe the fear that the devaluation of assets likely to be seen in many year end balance sheets will lead to mass foreclosure will turn out to be like the millennium bug – unfounded paranoia.  The banks are nothing if not self-interested and it is definitely not in their interests to run ships themselves – that would be far too close to getting one’s hands dirty.  And anyway, the banks want OTHER people to make money for them – they don’t want to have to do it themselves!

But the strain is indubitably great.  It’s going to be a long haul before the industry can command acceptable profits, and volatility is likely to continue for some time before it’s possible to relax.

So what about counter-party credit in all this?  I think the supply side definitely cannot afford to drop its guard.  In fact I’d advocate a very radical idea.  Maybe it is time for traders (those creatures for whom the words ‘credit risk’ translate simply into ‘ball and chain') should be encouraged by their employers to take a basic training in credit risk assessment.  At least that would extend the burden of watching for credit issues across the whole company, rather than leaving it to the poor, overworked and harassed credit manager.  It could be thought of like the Home Guard in the Second World War – the ordinary people had to step up and help in the job of watching out for danger.

Just a thought, but the fan surely will be hit by some unpleasantness in 2010 and it will be the alert and careful suppliers and traders who are likely to be the least damaged by it.