Fears persist of potential Yang Ming failure

5/11/2017

Some freight forwarders that fear a repeat of the chaos surrounding the collapse of Hanjin Shipping last year are said to be wary of using Taiwanese container carrier Yang Ming, despite its recent restructuring round and the resumption of trading of its shares.

Freight forwarding sources in Asia told Lloyd’s Loading List that some smaller forwarders in particular, whose businesses could potentially be threatened in the event that containers are caught up in any possible future bankruptcy event, are preferring to use other carriers, where possible, since Yang Ming raised concerns last month by suspending trading in its shares for two weeks.

As reported in Lloyd’s Loading List, shares in Yang Ming resumed trading on 4 May on the Taiwan Stock Exchange at more than twice their value before their suspension on 20 April, thanks to progress in its financial restructuring. Yang Ming said then it expected to complete the second stage of its recapitalisation by June 2017, when it would be “announcing the identities of the investors who participated in this round of issuance, as well as the details of this offering”.

Some analysts maintain there is little or no chance that Yang Ming will go the same way as Hanjin, chiefly because they expect that the Taiwanese government would intervene and bail out Yang Ming, if necessary. Analysts including Drewry and SeaIntel have also pointed to the decision by Yang Ming and its fellow partners in the new container shipping consortium The Alliance (Hapag-Lloyd, K Line, MOL, NYK and Yang Ming) to create an independent trust fund to safeguard cargo in the event of any member lines going the same way as Hanjin.

But Patrik Berglund, CEO of the benchmarking and market intelligence platform Xeneta, questioned whether the Taiwanese container line was financially stable yet – and how easily consortium members of The Alliance would cope with any future bankruptcy among one of its members.

He noted that the Taiwanese government had talked of investing US$1.9 billion in Taiwan’s container shipping sector, and that Yang Ming had highlighted an additional $54 million from six private investors. But he questioned Yang Ming’s assurances that the line would be returning to profitability in 2017. “That’s not necessarily true,” he said.

“On 19 April, trading on their shares was suddenly suspended, with the carrier announcing they were doing a reverse split that would reduce its share count by 50% in order to increase share value when trading resumed on 4 May. Yet they refused to release the identities of the six private investors, and the shipping world correctly noted that six $9 million investments was hardly going to keep Yang Ming afloat. Financial analysts think at least $300 million will be needed in 2017 to keep them from running out of cash,” Berglund noted.

He claimed that the ‘reverse split’ was not working. “YML shares closed on 19 April at NT$6.15 per share, and although it reopened on 4 May at NT$15.03, on 8 May (during morning trading in Taipei) the price had slid to NT$12.70 (and subsequently to NT$11.90 by close of trading on 8 May) − hardly the vote of confidence both the line and its customers needed.”

In an article published this week in Lloyd’s Loading List, Berglund said the shipping was “all about rates and performance − and neither carriers nor shippers can afford another Hanjin”, adding: “Although The Alliance has said it will work to move any distressed boxes in case of a member’s bankruptcy, YML is the world’s ninth-largest box carrier, and moving 585,000 marooned TEUs could completely overwhelm the already badly confused East-West shipping schedules.

“Low-priced boxes are being rolled-over repeatedly as higher-priced boxes are shipped in their place. Which of The Alliance carriers will drop their own paid cargo and take a big slug of YML’s boxes without the payment confirmation of a bankruptcy court?”  

As happened following Hanjin’s collapse, Berglund said rates may rise on the lanes served by Yang Ming – “but the other carriers’ ability to move boxes may be compromised by the now-catastrophic log jam at the container terminals,” he added. “As has been reliably reported by others, the carrier-induced backlog of cheaper-priced boxes, when added to the chaos already caused by The Alliance and the Ocean Alliance scheduling failures, will only serve to widen the widening divide between the carriers and shippers.”

Nevertheless, Berglund noted that many lessons had been learned from the summer of 2016, and he was hopeful that a repeat of last year’s Hanjin disruptions would not happen. “This year has seemingly recovered for the carriers, with much stronger prices being clocked for the main trade routes.”

But, Yang Ming could “throw things belly up again”, he said, promising to monitor the situation – and, of course, offering his company’s market intelligence services to potential customers. “We all must stay vigilant and monitor rate activity constantly,” Berglund noted. “It’s important to be in the know when volatility is at hand.”