Hong Kong's shipping industry, troubled by worldwide overcapacity and plunging freight rates, is now collapsing as quickly as it grew in the 1970s. Industry sources expect the colony's commercial fleet, which is among the world's biggest, to shrink significantly due to a continuing series of bankruptcies and reorganizations.
In late January, Hong Kong's third-largest shipping company, the Wah Kwong Shipping group, suspended trading on the local stock market and is now expected to renegotiate a reported $1 billion in outstanding debt.
Wah Kwong is the fourth major shipowner here to fall into difficulties in recent months. Industry analysts say it is unlikely to be the last.
``It looks like a long, cold year ahead for the industry,'' says Roger Ingoldby, a partner at Shipping Consultants (HK) Ltd. ``With some of the biggest firms in trouble, anybody could go next.''
The industry's weakness has become a major concern among foreign banks here, particularly Japanese and American institutions. Many of them have extended large loans to local shipowners over the past decade.
As in other leading shipping centers, Hong Kong's commercial fleet expanded rapidly in the 1970s, in part reflecting a mid-decade boom in commodities trade. In addition, rising oil prices were expected to boost demand for coal-carrying vessels.
Although world trade volume has increased since then, oversupply in the shipping industry has been evident for several years. As ship prices declined, the situation was worsened by owners who continued ordering vessels to take advantage of what they viewed as bargains.
Overcapacity in the industry is now estimated at 30 to 50 percent. Ship values have dropped by half in the past several years, according to brokers here, leaving many owners with inadequate collateral against their debts.
More critical has been a precipitous drop in global freight rates -- on some routes to record lows. This has set off a chain reaction, beginning with cargo companies, which normally lease ships, and ending with the shipowners themselves, such as Wah Kwong.
Wah Kwong's troubles began in 1984, when Irish Shipping Ltd. and Scottish Ship Management collapsed. Wah Kwong's ship charters to both companies cost it more than $12 million.
Wah Kwong, which owns some 40 vessels, had also chartered ships to Sanko Steamship of Japan. Sanko went bankrupt last year -- the largest shipper to do so thus far -- with $2.5 billion in debts.
The final blow for Wah Kwong came in January, when the Karlandar Kangaroo Line suspended operations. All five of the Sydney-based company's ships were chartered from Wah Kwong.
Hong Kong's largest shipowner, the C. H. Tung group, is in a similar situation. Tung, which owns more than 100 ships, has been renegotiating debts of more than $2 billion since late last year. On Feb. 5, creditor banks agreed to release funds to the group to allow it to continue operating.
Both companies reported substantial operating losses last year. For both companies, survival depends on an agreement among creditor banks to accept a debt rescheduling without, as one banker put it, ``getting too nervous and pulling the plug.''
Hong Kong's most prominent shipowner, Sir Y. K. Pao, has largely escaped the industry's downturn by diversifying into real estate and other non-maritime activities. But many smaller companies here have already been forced to dissolve. The best-known was the P. S. Li group, which collapsed last year. It owned about 20 ships.
Last year the colony's oldest shipowner, Jardine Shipping, was sold off by Jardine Matheson & Co., the old-line British trading house. Wheelock Marden, another company with a long British tradition here, allowed its shipping arm to slip into bankruptcy last August.