Four Things You Need to Know About Financial Distress in the Global Container Shipping Industry

Financial distress in the global container shipping industry

Yesterday, Hanjin, the world’s 7th largest shipping company, filed for receivership after recent debt restructuring talks broke down.

Reduced global trade, weaker demand for commodities and excess shipping capacity has caused a drop in prices and profits, and severe and mounting financial distress continues to plague the industry.

  • The Harpex, an index that measures global container shipping activity for commodities such as coal and iron ore, is down 39% year over year.
  • The Baltic Dry Index, which measures the demand for dry bulk commodity shipping capacity, continues to fluctuate within a historically depressed range despite a rebound from February lows.
  • The ClarkSea Index, a weighted average of vessel earnings in the main shipping sector, shows average bulk carrier earnings from January to July 2016 down 21% year-on-year.

In light of industry-wide financial pressure, here’s what you need to know to manage the counterparty financial risks to your company.

1. The Worst Distress Since the 2008 Financial Crisis

Global container shipping is experiencing the worst financial distress since the 2008 financial crisis.

According to the FRISK® Stress Index, the worst hit sector is SIC Code 441, where the risk of bankruptcy is currently +408% higher than prior to the last financial crisis.

Bankruptcy Risk Among Public Companies in the Container Shipping Industry, August 2016, June 2016

2.  Persistent Price Pressure and Mounting Losses

Freight rates are now so low that they barely cover costs.

Shipping companies have responded to the collapse in demand and excess capacity by cutting rates. While financially healthy companies can survive lower prices, weaker and more highly leveraged companies cannot.

Here’s how various container shipping companies are faring in this environment:

  • Hanjin, South Korea’s largest shipping company, filed for receivership on August 31st. Their FRISK® financial risk score signaled severe and growing financial distress, declining from a “3” to a “1” over the last 12 months, in the wake of tanking sales and mounting losses.

    Industry insiders had seen signs of their distress, but many counterparties were blindsided. For instance, Mark Szakonyi, the container shipping and international supply chain expert for, said recently, “Of all of the major container lines, they’re probably the ones closest on the ropes”. On the other hand, for a supply chain executive dealing with hundreds of supply chain counterparties, the bankruptcy was a sudden shock that disrupted the movement of his company's goods from Asia:
supply chain executive who was blindsided by Hanjin shipping company bankruptcy


  • U.S. based International Shipholding (IS) filed for bankruptcy in August. The highly leveraged 70-year-old company collapsed under debt associated with its bulk container shipping business. A FRISK® score of “1”  -- the most risky -- signaled a high probability of bankruptcy for over a year leading up to the filing.
  • Paragon Shipping (PRGN), like many of its financially distressed FRISK® “1” peers, continues to hang on by a thread. They are working with lenders to restructure debt, and employing many measures to improve the balance sheet and buy time, from debt restructuring to sale of assets.
  • After reporting a sharp drop in Q2 earnings, two of Europe's largest container shipping companies are taking active measures to stem the losses.  
    • Maersk (MAERSK B), the global category leader, reported an 88% drop in second-quarter profit as its oil and container divisions both suffered from falling prices. They are looking at aggressive cost cutting and restructuring options to stem future losses. Maersk has a current FRISK® score of “9”, an indication of financial health to weather the downturn.
    • Hapag-Lloyd AG (HPGLY) reported a 65% year-over-year drop in Q2 EBITDA amid declining volumes and freight rates. With a FRISK® score of “5”, they are forming a partnership with UASC (United Arab Shipping Company S.A.G.) and looking at other measures to strengthen competitive position and finances.

3. Recovery Will Take 18-24 Months, or More

Financial distress in maritime shipping is not expected to improve anytime soon.

Research shows that shipping downturns like the one we are currently in typically lasts 18-24 months. Some experts believe that this one could take as long as 2-3 years before supply and demand are realigned.

4. A Familiar Pattern of Financial Distress

As these problems persist, financial distress will spread to many more companies. More than half of the companies in our maritime shipping database are currently at elevated financial risk, with a FRISK® score of 5 or under.

Among the most distressed, including Hanjin, we typically observe a familiar pattern of financial activity: 

  • Mounting losses quarter after quarter
  • Working capital dropping deeper into the red, quarter after quarter
  • Debt restructuring or write offs, agency downgrades, plunging share price
  • Aggressive cash preservation measures: selling vessels, extending delivery on new ships, and other one time events to preserve liquidity
  • A FRISK® score dropping deeper into the “red zone”, as financial risk worsens.

Get Advance Warning of Growing Financial Risk

The worst financial risk of all is the risk you don’t see coming.

To avoid being blindsided, a predictive financial risk score can provide advance warning on increasing risk, and keep you abreast of the changing financial risks associated with all of your counterparties. The FRISK® score provides the most reliable warning of public company bankruptcies, accurately predicting 96% of them within 12 months.

In addition, the same global economic slump and excess debt that is causing distress in shipping impacts companies across many industries. Take steps now to learn which risky counterparties should be on your radar, so you can take steps to mitigate these growing risks.

After all, forewarned is forearmed.

Do you know which of your large global customers or suppliers are experiencing growing financial distress? Get a personalized risk assessment.

About CreditRiskMonitor

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At the core of CreditRiskMonitor’s service is its 96%-accurate FRISK® score, which is formulated to predict public company bankruptcy risk. One of four key components calculated in the FRISK® score is crowdsourced subscriber activity. This unique system tracks subscribers' patterns of research activity, capturing and aggregating the real-time concerns of what are essentially the key gatekeepers of corporate credit. Other features of CreditRiskMonitor’s service include timely news alerts, the Altman Z”-Score, agency ratings, financial ratios and trends. CreditRiskMonitor’s network of trade contributors provides more than $150 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.