No let-up in letters of credit famine

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Janet Porter - Thursday 8 January 2009

Claus Hyldager: we need to watch every dollar.

WORLD trade continues to be crippled by the letters of credit famine that is preventing cargo of all types from being shipped. 
Those caught up in the crisis either directly or indirectly say there has been no easing of the situation that began late last summer and has brought severe disruption to the global shipping trades. 
A great deal of cargo is stuck on the quayside unable to move, according to Inchcape Shipping Services chief executive Claus Hyldager. 
“The banks are still not open for business” as far as issuing letters of credit, a situation that is having far reaching consequences. 
Marine services provider ISS, with a network of over 200 offices in 52 countries, is well-placed to monitor how banks’ behaviour is hitting global commerce and also affecting the attitude of commercial companies that are no longer willing to extend credit to their trading partners. 
In the case of ISS and its ship agency activities, that means demanding cash payments in advance rather than risk being trapped in the middle should, for example, an owner or charterer collapse. 
The profit margins of ship agents are too slim to be able to afford to take the risk of a principal going out of business, and creditors turning to the local representative for compensation. 
Even though a ship agent would not be legally liable for the debts of a customer, it might still be caught in an awkward situation that could damage relationships with other business partners. 
Recent events in the shipping world have shown how fast an apparently sound organisation can get into financial difficulties and be forced into receivership, and intermediaries are now taking action to protect their own organisations from any potential fall-out. 
That means not only insisting on upfront settlements, but also being far more selective in terms of business associates. 
“We need to see the colour of their money,” Mr Hyldager said in an interview with Lloyd’s List. 
For ISS, which has been owned by Dubai investment house Istithmar PJSC for the past three years, there is now far greater emphasis than ever before on the quality of the client portfolio that is concentrated on bluechip corporate names and governments. 
Mr Hyldager acknowledges that some companies not ranked among the elite may find it increasingly difficult to operate as they are squeezed out of business-to-business activities by the flight to low risk relationships, and the shortage of credit. 
Money management and maintaining cashflow will be a top priority in the coming year for ISS. 
“We need to watch every dollar,” said Mr Hyldager.