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Carriers weather storm, but face US$20 billion in short-term losses (HK SHIPPING GAZETTE)
CONTAINER shipping companies have proved to be remarkably resilient despite suffering industry-wide operating losses totalling more than US$6 billion last year.

According to a survey by Alphaliner, three small carriers, TCC, Yanghai Shipping and Johan Shipping with a combined market share of only 0.2 per cent filed for insolvency last year.

Although most major carriers appear to have successfully weathered the storm of 2011, a number continue to struggle under high indebtedness and committed capital spending obligations.

The survey showed that fresh capital injections may be required to keep some of the companies solvent. It's estimated that total short-term funding needs for container carriers could reach $20 billion in the current year based on the companies' estimated debt repayment and finance cost requirements.

Only four out of the 17 carriers surveyed reported healthy leverage ratios last year with net debt-to-EBITDA of below seven fold. Eight out of 17 major carriers reported negative EBITDA cash flow earnings with almost half being unable to service interest payments from cash flow and had to raise cash by selling shares, borrowing or selling assets.

Apart from the three Japanese carriers - MOL, NYK and "K" Line - all of the other majors have had outstanding capital expenditure on new ships that need to be paid in the next three years, which further strains balance sheets.

Among the most leveraged carriers, Zim faces the highest liquidity risk with debts of $2.5 billion against a shareholders' equity of $351 million as at the end of last year. It also has obligations of $1.7 billion on the outstanding balance on 13 ships due to be delivered in 2015.

Zim was forced to sell its stake in a Nigerian container terminal for $154 million last year to raise cash. The company's shareholders, Israel Corp and the Ofer Group, it had to contribute $150 million of subordinated loans in the last three months to bolster the firm's finances.

Despite this, Zim still faces a potential cash shortfall despite the fact that it has received waivers from its creditors from its debt covenants - it still has about $819 million of short-term debt due this year which needs to be financed.

Despite the weak liquidity position for some of the carriers, none of the main carriers are expected to sink into bankruptcy, the survey showed, adding that operating margins are improving rapidly due to the successful implementation of rate increases on the key Asia-Europe and transpacific trade lanes in the last two months.

Even in the event of a sustained slump, existing stakeholders are expected to step in to rescue the carriers. The shipping lines with high gearing ratios including Yang Ming, Hyundai Merchant Marine, Hanjin Shipping and Zim are all expected to receive stakeholder support given the importance of these firms to their respective local interests.