CMA CGM sees return to normal for ex-China trade by end-March

3/13/2020

One of the world’s biggest shipping companies, CMA CGM, has said that shipments from China are returning to normal as manufacturing activity in the country continues to ramp-up, The Financial Times reports.

“The warehouses are empty in Europe, they need to order from China to fulfil demand. [Chinese] factories are at 80% of full production, and we think by the end of March the situation will be back to normal”,  CEO Rodolphe Saadé  told the newspaper.

However, he warned the economic shock was shifting from China to Europe.

“Today we can see it’s becoming a global crisis. In Europe there is a lot of fear over the coronavirus”.

Saadé said that so intense was the demand for Chinese goods from starved international customers that the Marseilles-based company's logistics arm,  Ceva Logistics, had recently chartered 50 aircraft to fly car parts from China to Los Angeles for a big customer in the US.

“We also have clients in Europe asking us to make available ships for containers from Shanghai to Le Havre,” he said. At the peak of the coronavirus epidemic in China, CMA CGM had 19 of the more than 500 ships in its fleet idle at anchor, according to the company.

The FT's report also highighted that “fear is stalking CMA GGM itself,” a reference to a plummeting in the value of the privately-held company’s debt in the last few weeks, with its five-year bond trading at just 65 cents on the euro, leaving bondholders braced for heavy losses.

It said the company has a €725 million bond maturing in January that will need either refinancing or repaying with an equity raise. The cost of buying credit-default swaps - a derivative contract that acts like insurance against a company not paying its debt - on CMA CGM has more than doubled since the start of the year to pass the 2,000 basis point mark this week.

This price implies that the company has a more than 80% chance of defaulting in the next five years. The company said its bond performance “reflects the volatility of all financial markets -  including in this entire sector - in the context of the Covid-19 virus”.

The report also noted that CMA CGM has emphasised the progress it was making in its plan to raise over $2 billion in cash and credit lines by mid-2020, having already renewed credit lines for $535 million and agreed to sell terminals to a joint venture to help raise nearly $1 billion.

CMA CGM came close to the brink after the financial crisis. It narrowly avoided catastrophe as Saadé’s father, Jacques Saadé - the Franco-Lebanese shipping magnate who founded the company - negotiated a combined $750 million of capital injections from a Turkish investor and the French sovereign wealth fund in 2010 and 2012.

Saadé said the group’s volumes in February were nearly 8% down on January, as CMA CGM reported a loss of $229  million in 2019 compared with a net profit of $34 million in the previous year.