Maritime analyst Drewry announced that following the release of carriers’ first-half 2016 results that its carrier financial stress index hit the lowest ever point since its creation.
Established during the 2008-2009 financial crisis, the Drewry’s Z-score index fell along with the slump in container freight rates, which in the second-quarter of this year decreased to historical lows.
The Z-score offers an insight into the financial health of carriers with any reading below 1.8 indicating a high risk of bankruptcy.
Out of 14 selected shipping companies, only A.P. Moller-Maersk and OOIL scored high enough to enter the cautionary “grey zone”, with the remaining 12 failing to escape the “distress zone”, an area from which major carriers have not been able to escape since the end of 2010
“As freight rates staged something of a recovery in third-quarter we expect to see some uptick to the Z-score when the third-quarter 2016 results are published, while the removal of Hanjin from the sample will also benefit the average score,” Drewry’s Container Insight Weekly read.
“Nonetheless, carriers will almost certainly continue to reside in the so-called ‘distress zone’.”
According to Drewry, “firstly all stakeholders must understand that no carrier is too big to fail, the hitherto expectation that some white knight would rescue an ailing carrier has been erased forever.”
“Secondly, while Hanjin’s financial position was at the extreme edges and its demise is not expected to create a domino effect, a number of major carriers are still struggling and the risk of another following the same path as the Korean line cannot be discounted,” the statement continued.
“Knowing these things, any company doing business with ocean carriers must undertake more due diligence than was previously the case.”