Dive Brief:
- Yang Ming Marine Transport (YMM), the Taiwanese freight shipper, reported a 2016 loss of $492.1 million, American Shipper reported.
- The losses, which more than doubled from a year ago, come in the wake of a massive reorganizing of the ocean shipping industry, a fallout in part due to the Hanjin bankrupcty and liquidation last year.
- Of primary concern, particularly to shipping research firm Drewry, is the amount of debt that YMM is carrying. While the shipper argues that comparing it to such competitors as Hanjin would be inappropriate due to its ownership structure and support from its government, Drewry argues that its highly leveraged position will necessitate an influx of cash in order to lower the debt levels.
Dive Insight:
The ocean shipping industry has been in flux for the past year, and with bankruptcy and consolidation playing integral roles in the industry's shift, large and highly leveraged companies such as YMM are playing a dangerous game of musical chairs. Drewry's argument that the company's balance sheet calls for higher cash levels is sound, but options available, including selling off assets, which reduces their capacity to make money, or the raising of equity, which further dilutes the balance sheet — will have limited impact.
YMM, which will be a part of THE Alliance, which officially forms on April 1st, will be part of a group of shippers that includes NYK, MOL, K Line and Hapag-Lloyd (with UASC). YMM's financial status may be of concern to the group, which has recently pledged to form an independent trustee to manage funds in case one of the five members becomes insolvent. This contingency plan, a first for the industry, protects the delivery of cargo even in the event of bankruptcy.
This insurance policy of sorts is good assurance for companies who need to ship cargo, but with THE Alliance's formation yet to arrive, YMM's financial status may become an unanticipated burden on the whole group. While Drewry asserts that the Taiwanese government will not allow the shipper to become insolvent, its climbing debt is a point of concern.