Graphic: Harry Campbell

In the mid to late 19th century, American clipper ships set the standard for the world and challenged the maritime supremacy of Great Britain.  After World War II, the US merchant marine fleet was the world’s largest, representing about 43 percent of the world’s shipping trade.  US ship operators developed containerization and briefly dominated that trade. These days, the the US international shipping industry is largely moribund.  A recent article in Reuters identifies one area where the United States is still attractive to ship operators – bankruptcy court.  Both US and foreign based ship owners have found it advantageous to file for bankruptcy in the US.

Analysis: Shippers make U.S. the port of call for bankruptcy

The shipping industry has faltered as a glut of ships built before the global recession caused demand to drop. Bank lenders, facing pressure to cut exposure to risky assets, have also put the squeeze on shippers.

At least three U.S.-based shippers have filed for bankruptcy in U.S. courts since November, while other foreign shippers with U.S. creditors have filed for Chapter 15.

An early indicator of U.S. courts’ hospitality to foreign shippers came in 2000, when a Delaware judge ruled that a financial account was enough to justify a U.S. restructuring for Greece-based Global Ocean Carriers Ltd. That company, however, also had a subsidiary incorporated in Delaware.

Even under the best of circumstances, bankruptcy can be a brutal business. In November, we posted about the bankruptcy of General Maritime (see Tough Times in the Tanker Markets – General Maritime Bankruptcy and Continued Overcapacity.)  General Maritime had sought to restructure its finances by borrowing from a hedge fund, Oaktree Capital Management.  Previously, Steven Davidoff, writing for the New York Times had warned of the difficulties of such a loan. Hazards of Borrowing Money From Hedge Funds.  In current negotiations, Oaktree will now control 100% of General Maritime’s Equity.  Judge Approves Changes To General Maritime’s Plan.