Private equity rush is bad news for shipping

[SINGAPORE] The shipping industry faces a looming capacity glut as billions of dollars pumped into it by private equity have stoked a vessel-buying spree, threatening its prospects just as the sector is emerging from its worst downturn in three decades.

Backed by private equity and hedge fund financing, shipping companies have placed orders for thousands of new ships over the past two years, reminiscent of the ship-ordering binge of the mid-2000s that eventually led to overcapacity after the global financial crisis severely hit cargo demand.

The demand-supply equilibrium could tilt into overcapacity again from 2016, straining shipping companies' finances. It may also make private equity's exit from shipping less profitable, shipping experts said.