Shipping Sectors Feel Cash Flow Squeeze

by Lloyd's List - last modified Jun 19, 2012 01:05 PM

Companies taking delivery of new tonnage are finding themselves at the forefront of those feeling the pinch.

Consultants, lawyers and ratings agencies are among those highlighting the issue, after Standard & Poor’s this week downgraded French container shipping giant CMA CGM, arguing explicitly that a deterioration in liquidity leaves the world’s number three box ship outfit by fleet size vulnerable to default.

Jeff Drake, director of turnaround specialists Alix Partners, said several successive quarters of negative results mean many operators must now be trading on cash reserves that are, by definition, finite.

“Some sectors, certainly tankers and dry bulk, are seeing financial distress. We expect container carriers, which haven’t been able to build up large cash reserves and haven’t had funding, to see their operating cash flow coming under more and more pressure,” he said.

Ambitious capital expenditure plans or the impending arrival of major new building orders should be flagged as an amber warning light, because they represent pointers that a company will face increased near term cash outlays, Mr Drake added.

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