Credit downgrades across transport sector: analyst


Credit and re-financing will be difficult to secure for small operators and national freight forwarders alike

Credit downgrades across transport sector: analyst
Credit downgrades across transport sector: analyst
By Samantha Freestone

Credit and re-financing will be difficult to secure for small operators and national freight forwarders alike as banks "will be challenged to find comfort in lending to any industry".

A leading finance specialist who specialises in credit research says Australia is entering the worst financial crisis since the Second World War and there is little to compare it to.

"A lot of companies took advantage of lapse lending and now, as companies attempt to re-finance their debt, they will find banks are focussed on cash flow," says the financial expert, who asked not to be named as he is not an official spokesperson for the banking agency.

He says "banks have stopped lending" with a "raft of [credit] downgrades" seen in the transport sector.

"The rating agencies have looked at various industries and have made several downgrades in relation to credit," he says.

He used the housing crisis figures in the United States as a gauge, explaining in 1991 – the last "series of losses" associated with housing – saw a fall of only 5 percent.

"Now we see housing prices falling by 20 percent," he says.

In the US, economy analysts Standards & Poor’s reveals the recession is creating a "dim outlook for the North American transportation sector".

In a report released on January 13, it surmised slowing growth and credit market "dislocations" are creating pressure in the industry.

"Standard & Poor's economists forecast that real US GDP will contract by close to 6 percent in the fourth quarter of 2008 and will not hit bottom until mid-2009," it reported.

The sharp decline in oil prices (we project average prices of $44 per barrel in 2009, compared with $100 in 2008) provides a significant offset for airlines but only modest relief for other sectors that already had means to pass through higher fuel costs.

"We see trucking and car rental companies under the greatest pressure and recently downgraded (credit access) several large participants in those sectors," the report reads.

They predict the weakness is spreading to other sectors that had previously seen only moderate weakness, including air express, shipping, railroads, and equipment leasing companiesVolumes are slipping, though pricing is holding, the credit ratings firm suggests.

"American trucking, car rental, and airline companies are negative or CreditWatch negative, compared with about one-third for the transportation sector overall," it reported.

In Australia, freight levels are starting to bear the brunt of a slowing economy, with some freight forwarders already recording a downturn in figures for the first quarter.

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