Analysis of solvency and loss of asset value in publicly traded shipping firms

Abstract

During the economic boom period, massive cash loans (at low interest rates) are available to entice borrowers. As ships are capital intensive assets of the shipping firms, part of it need to be acquired through incurring debts. At the economic peak period of 2006, many shipping firms invested massively in the newbuilding of the ships. However, there is a delivery lead time of 3-5 years for newbuilding. When the ship was delivered, the shipping industry was facing with economic downturn whereby the demand for shipping services plumped drastically, leaving the market with oversupply of ship capacity.

This paper, which is a part of a set of three papers, seeks to focus on the financial analysis of the publicly traded shipping firms, mainly the solvency and loss of asset value. This paper would only focus on the container trade while the other two papers would be discussing about the dry and wet bulk trades.

Although shipping firms could gain insights about the market condition based on the industry average performance provided by the PricewaterhouseCoopers (PwC), the latest updates of the PwC maritime financial ratios publication stopped at 2013. Thus, this paper also aims to create a model to simulate the PwC maritime financial ratios.