Shipping industry enjoys interest rate cuts

As international interest rates keep getting trimmed, domestic shipping companies enjoyed considerable interest rate reductions that have burdened their repayment of foreign long-term debts.

According to the shipping industry on September 21, though the LIBOR (London InterBank Offered Rate) rate stood at an average 6.6% last year, it started to fall early this year and stands at 3.1% now, a 3.5% fall in the last 9 months. Especially, the FRB (Federal Reserve Bank) lowered the federal interest rate another 0.5% to rid financial markets of uncertainty due to the recent terrorist attacks in New York; further cuts are expected.

As of the end of last year, Hyundai Merchant Marine had foreign long-term debts amounting to 2.8 billion dollars. With the new lower interest rates, interest payments on their debt will be 90 million dollars less than last year.

Hanjin Shipping, with 2.2 billion dollars of long-term foreign debt, will save over 60 million dollars compared to last year and SK shipping will also enjoy reduced payments by around 30 million dollars.

Shipping industry analysts predicted that the interest savings might overshadow the increase in war-risk insurance premiums due to US attacks in the Middle East. The War Risk Insurance Committee based in London revealed recently that it would increase current war-risk insurance five-fold.

A source at the industry said that benefits will grow as interest rates continue to fall. He didn't think that domestic shipping companies would be hurt by the new war-risk rates due to lowered interest rates counter-balancing them.