Shipping companies struggle with limited access to finance

27 November 2012

Funding access issues, yet continued investment in larger vessels drives GCC port expansion

Accessing financing continues to be difficult for shipping companies and is forcing changes to the structure of the industry.

Despite the lack of funding availability, the bigger international shipping companies are continuing to purchase increasingly large ships.

“As a result of the downturn in the global economy, the whole dynamic of the shipping industry has undergone a major change,” Sheikh Diaj bin Salman al-Khalifa, chairman of Arab Shipbuilding & Repair Yard Company in Bahrain, told delegates at Seatrade’s Middle East Maritime conference in Dubai on 27 November.

“On the one hand, the industry suffers from difficult access to funding, while on the other, major shipping lines continue to expand their capacity, especially by ordering vessels of super post-panamax capacity, with a view to take advantage of the economies of scale,” he told delegates.

He added that most of the major shipping lines took delivery of ships in the first six months of this year, and many of these new ships have a capacity of more than 10,000 twenty-foot equivalent units (TEUs).

Selected Middle East port projects
Project NameCountry NameRevised Budget ($m)Project Status
KizadUAE10,000Execution
Grand Faw Port projectIraq8,400Execution
New Doha PortQatar7,000Execution
King Abdullah Economic City: Millennium SeaportSaudi Arabia6,000Execution
East Port Said ExpansionEgypt5,400Design
La Goulette Port: cruise terminalTunisia2,200On Hold
PAMEC: Logistics & Supply Chain ZoneSaudi Arabia2,000On Hold
TangMed Container Port phase 2Morocco1,400Execution
Aluminium Project: Ras al-Khair aluminium smelter – port areaSaudi Arabia1,332Execution
Bubiyan Seaport project: phase 2 – port worksKuwait1,100Execution
Redevelopment of Mina RashidUAE1,000On Hold
Aden Port expansionYemen850On Hold
Source: MEED Projects

The trend towards acquiring larger vessels, coupled with a lack of funding availability and price wars between shipping companies, could drive smaller shipping lines in the Middle East out of the international market.

These smaller players will need to “strengthen their position by forming alliances among themselves, through mergers, acquisitions and other means to protect their interests”, said Sheikh Diaj.

It was also recommended that small shipping lines should focus on supporting inter-regional trade and provide feeder services to larger shipping companies, rather than competing against them for international business.

The larger shipping companies have had some success accessing financing in recent months. Danish shipping and oil company Moller-Maersk has raised two bonds this year, issuing a $925.6m bond in August, which followed an earlier $504.5m bond in March.

“The success of these issues would indicate that major shipping lines with strong capital base and excellent track record and high operational efficiencies can still raise financing by directly accessing the capital markets without depending on bank financing,” said Sheikh Diaj.

GCC ports are investing heavily in port expansion and ensuring they are equipped to handle the increasingly large container ships passing through the region.

Port investment is also part of GCC governments’ initiatives to diversify their economies away from a reliance on oil and gas-related industries.

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