Lars Kyvsgaard ceo of Kyvsgaard Consulting said that a combination of too much funding be available to the industry prior to the financial crisis combined with a lack of a risk culture had resulted in losses.
“The risk culture has not been there in the shipping industry”, and instead there has been a focus on growth and becoming bigger, Kyvsgaard told the ShippingWatch/Blue MBA Conference in Singapore last week.
With many shipping and offshore companies facing financial difficulties he stressed the need for a contingency plan. Having a contingency plan enables companies to voluntarily enter restructuring and work through periods of financial difficulty.
Kyvsgaard highlighted the Torm’s lengthy voluntary restructuring as a good example of a controlled restructuring that avoided involvement of the courts. At the other extreme was the collapse of Hanjin Shipping where “everything went out of control”. This most “severe bankruptcy” in shipping for many years would have had less impact on the wider industry if it had been more controlled.
BW Offshore’s restructuring was seen as another positive example with Kyvsgaard noting the company was able to carry it out very quickly and smoothly as they were prepared.
In terms of reducing financial risk Kyvsgaard warned companies off bond financing, a focus of many current financial restructurings. “When you come into a negotiation with a bondholder it is not a negotiation, they are often very aggressive. My advice is avoid bond financing.” On the financing side he said that companies should have a diversified group of banks.
He also said shipowners should avoid taking long term charters without termination clauses. “To have those long term time charter commitments is too dangerous.”
Kyvsgaard concluded that shipping would be come profitable again when it develops a risk culture, focuses on innovation rather than asset play and also focuses on consolidation.
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