Goverment aid = long term trip-up?

The Taiwanese government has approved a program for state-aid for the national shipping sector. Details are yet to be released, but the core is the access to low-interest loans for the shipping sector.

In the short-term, providing such a security blanket for national carriers such as Evergreen, Yangming and Wan Hai might by some be seen as beneficial. It reassures shippers that the carriers will not be allowed to collapse - and hence they can safely book with loss-making carriers. This prevents a negative spiral where shipper concern leads to loss of cargo, further accellerating losses which increases risk of bankruptcy - in turn causing even more shippers to flee to more stable carriers.

But there are also two other aspects that should be kept in mind.

The reason the carriers are loss making is a structural imbalance in the market which is largely of the carriers' own making. The resolution of this problem requires significant changes in the industry in general, and within the individual carriers in particular. Changes that are often painful, as old ways of doing business gives way to a changed business model. Providing a state-sponsored financial security blanket will reduce the pressure to transform the companies - i.e. giving short-term relief but at the risk of not making the necessary changes. Long term this means that the risk of being left behind by a rapidly changing industry is increased.

The other important key aspect is a simple matter of negotiation leverage: Given the financial security blanket, the Taiwanese carriers have been deprived of a key negotiation tool versus their creditors. They will no longer be able to pressure for example non-operating vessel owners to renegotiate unfavorable charter deals. The "give me a better deal, or I go bankrupt" negotiation chip has been removed from the equation - and the effect is a slightly less competitive position of the Taiwanese carriers versus some of the other carriers. Short-term that is not an issue with the promised access to additional working capital, but in reality that is merely postponing a currently large problem for an even larger problem longer term.