Dive Brief:
- A Drewry financial report recently placed Yang Ming Marine Transport under fire when it observed the Taiwanese carrier had lost $1.2 billion since 2009, and projected the company would again record losses in 2017 based on projections, The Loadstar reported last week.
- While industry losses are not new, Yang Ming presents a particularly risky case due to a debt-equity ratio (net gearing ratio of 437%) that is 3.26 times higher than the industry average of 124%. The high operational costs and low returns are not promising for the line, and the report adds restructuring is essential.
- Yang Ming, however, objected strenuously to the negative forecast, sharing not only its strategy for solvency through a fresh round of capital injections and stock restructuring, but also its access to a government fund of $1.9 billion, its plans management pay cuts, and promising ongoing reliability.
Dive Insight:
The aftermath of Hanjin Shipping's bankruptcy has left a scar on shippers' imaginations, as carrier risk now seems as real a threat as any, especially given the shipping industry's continued financial troubles.
Last week's episodes only highlight these concerns, as a due diligence report by Drewry found an alarmingly high debt-equity ratio, and rang the warning bells. Yang Ming's quick response, however, indicate the line may be better positioned than Hanjin was, and its willingness to provide evidence in a customer advisory is (slightly) reassuring.
One key difference between the two lines is that South Korea explicitly refused to bail the bankrupt Hanjin out, leaving it to devise alternative plans in an adverse market. Nobody expected it to fall as hard as it did, but that's not to say we should not have. Meanwhile, Yang Ming is part-owned by Taiwan, and the government seems willing to offer reserves for emergency use but also increase its stake in the company. Such tactics, according to the IMF, may help save a struggling industry at a time when competitive forces demand increased investment.
In a business where rumors of mergers and failures fly like fast birds, Yang Ming is doing its best to stand firm. Meanwhile, shippers should continue to watch Yang Ming's restructuring and financial state so as not to be surprised if the eighth largest shipping line is in danger of falling once more.
