The dramatic decline in world trade in late 2008 and 2009 caused freight rates and vessel values to decline sharply and raised significant challenges for the future of a large number of shipping companies, according to the PwC Global Shipping Benchmarking Survey 2010.
However, as the world economy started its slow path to recovery in 2010 and the measures taken by shipping companies started bringing results, PwC expects reported performance to improve in 2010.
The survey analyses the key performance indicators (KPIs) of more than 110 shipping companies all over the world. The results are based on their financial statements over the last five years as well as their annual reports of 2009. The survey covers both quantitative and qualitative information and gives insight into how these companies are facing the current economic downturn.
The survey aimed to identify the impact of the economic downturn the shipping industry, up to December 31, 2009 and the measures that shipping companies have taken as reported in their annual reports.
According to the PwC survey, the shipping industry reported its worst performance in the five years the survey covered. This was evident across all sub-sectors and for all KPIs that were measured. The dry bulk sub-sector was the best performer, while the container sub-sector was the worst performer.
"Year 2009 was one that most shipping companies want to leave behind,” said Socrates Leptos-Bourgi of PwC. "In 2010 we have seen some signs of better times ahead and most shipping companies will start to recover. The big question now is whether demand will be able to absorb the much expanded world fleet.
"This will have a direct impact on freight rates, which have become very volatile and sensitive to short term news and statistics that either indicate that the world economy is on the path to recovery or that we are entering into a double dip recession.”
The market uncertainty, freight rate volatility and the restricted access to new loan finance has been a huge challenge for the management of shipping companies, who had to seek solutions requiring tough negotiations between vessel owners, charterers, shipyards and, of course, the banks.
A number of companies were forced to restructure or refinance their loan facilities as a result of covenant breaches incurred. Approximately 20 percent of the companies participating in the survey have reported that they restructured or refinanced their loan obligations during 2009. Dry bulk owners and containership owners, the sectors that have most suffered from the economic downturn, reported the highest percentage of refinancing.
Approximately 23 percent of the survey participants have reported that they effected a network optimisation in order to mitigate their risks and minimise losses, while 18 percent took cost reduction measures and 32 percent amended or cancelled their dividend payments.
Additionally, a number of companies were forced to postpone deliveries or cancel orders at shipyards. As a result, vessel deliveries in 2009 were 25 percent lower than originally expected in the beginning of the year. Around 39 percent of the survey participating companies reported cancellations of new building orders, most of them from the container sector. And the number of new orders placed in 2009 was one of the lowest in the last 10 years.
The impact of demand and supply imbalance was particularly evident on vessel values which were estimated to have declined at a range of 30-60 percent from their peak in 2008 - depending on the vessel type. Of the total companies covered in the survey, 34 percent reported asset impairments, most of them from the container sector followed by the dry bulk sector.