The shipping industry’s $350 billion debt

By Felix Salmon
November 12, 2009
Landon Thomas's story on dodgy shipping loans has some absolutely astonishing numbers, the biggest of which is simply the size of the market, which he pegs at a whopping $350 billion.

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Landon Thomas‘s story on dodgy shipping loans has some absolutely astonishing numbers, the biggest of which is simply the size of the market, which he pegs at a whopping $350 billion.

The story is pegged to Eastwind Maritime, a shipper which went bust this summer owing $300 million on a fleet of 55 ships. That’s about $5.5 million per ship, which isn’t very much when the average five-year-old vessel was valued at about $88 million as of June of 2008. But things are different now:

Aozora Bank, a Japanese bank that in addition to being one of Eastwind’s top lenders is a major creditor of Lehman Brothers, found to its dismay that the value of the 12 Eastwind ships it now controlled was considerably lower than its $77 million exposure.

The biggest at-risk bank is German state-owned lender HSH Nordbank, with $50 billion of shipping loans. So far, it’s provisioned just $800 million of those, although it’s also received $19.4 billion in support from its shareholders, the regional German states of Hamburg and Schleswig-Holstein.

The problem is that the collateral on these loans is the ships themselves, and many of these ships are simply worthless given the glut of newer ships coming on to the market. So far, the shippers have been making their interest payments, which has helped the banks to avoid writing down the loans. But if the business dries up, the banks aren’t going to be happy with their security. It’s not a pretty picture for anybody concerned.

Comments
5 comments so far

“worthless given the glut of new ships” and dramatic decrease in trade due to the global recession. Long term higher oil prices will also make long-range shipping less attractive.

Posted by Jim Caserta | Report as abusive

Any idea how long these ships have been in service? $88 million still seems high for a ship!

” It’s not a pretty picture for anybody concerned.”

Except for the folks that made some commish on the loans.

12 ships not worth $77MM == $6.4MM per ship

Data point from 17 months ago: 5-yr-old ship worth $88MM

Lead time for building a ship is on a scale similar to lead time for turning a ship–in short, everything made in the interim was well-known and anticipated in June 2008.

Clear conclusion 1: Shipbuilders should be shorted; the product they are producing will be difficult to sell for a profit, or even at its marginal cost.

Clear conclusion 2: The Eastwind ships are much more than five years old, and probably weren’t worth much more than the cost of the loan then.

[So far, the shippers have been making their interest payments, which has helped the banks to avoid writing down the loans]

errr yes, it does help you avoid writing down a loan if it is *current* and *performing*.

Posted by dsquared | Report as abusive
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