S&P: Credit Risks Mount For U.S. Domestic Shipping Companies As Ships Start Showing Their Age

News Release from Standard and Poors, March 26, 2012

The U.S. domestic shipping industry's fleet is aging, Standard & Poor's Ratings Services said in an article titled "Credit Risks Mount For U.S. Domestic Shipping Companies As Ships Start Showing Their Age," published earlier today on RatingsDirect.

More than a thousand ships and barges will reach the end of their useful lives in the next few years. More may be forced out of service as environmental standards tighten. But given the eroding credit quality of many carriers, replacing vessels may prove difficult, or at least costly, for shipping companies.

"The U.S. domestic fleet likely will contract over the next three to five years as vessels retire faster than owners can replace them," said Standard & Poor's credit analyst Funmi Afonja. "Companies that cannot find sufficient financing to refresh their fleet may not survive. For operators that do, the reduced capacity should cut back on industry oversupply and support better charter rates."

The inland river system and the coastwise trade benefit from protections in the Jones Act that exclude competition from foreign-flagged vessels. However, U.S.-built ships are expensive. And shipping companies' access to financing and cost of capital depend heavily on their credit quality and capital market conditions.

"Those with satisfactory credit quality can seek help from government-backed financing programs," Ms. Afonja said. "But fewer companies can meet those programs' credit standards."

"Ultimately, how quickly U.S. domestic shipping companies are able to replace retired vessels and how they finance fleet replacement will be the keys to their well-being," she added.

Weak credit quality, challenging capital market conditions, and reduced access to government-guaranteed loans likely will increase the cost of funding new vessels and retrofitting old ones to meet upcoming environmental regulations.

Companies at the lower end of the speculative-grade spectrum--particularly those we rate in the 'B' category or below)--are both the most likely to face steep financing costs and the least equipped to deal with these high costs.

The report is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com.

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S&P: Credit Risks Mount For U.S. Domestic Shipping Companies As Ships Start Showing Their Age (subscription required)

As Predicted: US-Build requirement for ships: Dilemma for Hawaii, Guam, Alaska, and Puerto Rico