Taiwan’s Yang Ming is the container line in the greatest financial danger following the bankruptcy of Hanjin Shipping, with the sectors most leveraged balance sheet.
Drewry Financial Research Services (DFRS) says the line has net gearing of 437% at the end of Q3, soaring above the industry average of 124% and nearly five times that of its closest regional peer, Evergreen.
Coverage in The Loadstar quoted the DFRS report. “Yang Ming’s high debt is a great cause for concern for us, given the heightened financial risks. Even with recovery in the underlying freight market, the debt burden without a restructuring is a red flag and a clear sell signal.”
DFRS noted that Yang Ming had accumulated NTD38.4bn ($1.2bn) in losses since 2009 and that the carrier’s high cost structure, combined with its debt mountain, will “keep Yang Ming in the red in 2017”, despite an improved outlook for freight rates.
YMM previously announced steep pay cuts to reduce costs, with the company’s board of directors approving a plan to cut the salaries of first line managers by 30%, while executives’ pay is to be reduced by 50%.
The company also implemented new guidelines aimed at achieving more nimble operations and more stringent cost controls. Under the new guidelines, its vessels would no longer take on loss-making shipments, and would charge demurrage and docking fees.
The Taiwan government owns a 33% stake in Yang Ming and will need to support the debt-ridden carrier, suggests DFRS.
According to Alphaliner data, Yang Ming is currently the ninth-largest ocean carrier, operating a fleet of 101 ships for 579,048 teu, giving it a 2.8% global market share.
Fifty-five of its vessels are chartered, including eight 14,000 teu ultra-large vessels on fixed-rate long-term lease from Seaspan.
It is possible that, to reduce its vessel operating costs, it may endeavour to renegotiate the terms and daily hire rates of its chartered-in tonnage, along similar lines to Hyundai Merchant Marine and Hanjin.
Yang Ming, founded in 1972, is a member of the CKYE east-west vessel alliance, but in April it will join with Hapag-Lloyd and the soon-to-be-merged container businesses of K Line, MOL and NYK in THE Alliance.
Its dire financial health will be of great concern to the other members.
THE Alliance is the first vessel-sharing agreement to include safeguards for shippers in case of a failure by one of the partners.
Following the Hanjin crash, which left some $12bn of cargo stranded on 100 containerships around the world, shippers are understandably nervous about the financial health of ocean carriers.
UPDATE – Ina statement the world’s ninth-largest carrier said: “Yang Ming is not in default of any obligations and suggestions otherwise are patently false. As we head into the new year, Yang Ming assures its customers that it will remain absolutely committed to stay competitive in the industry.”