A report published on Sunday by German public broadcaster ARD has suggested that the northern German states of Hamburg and Schleswig-Holstein may have to offer up to 20 billion euros ($21.4 billion) in credit guarantees to prop up banks with bad investments in container shipping.

"Many competitors here have hardly any chance against the new mega-shipping companies in Asia," reporter Heinz-Roger Dohms wrote. "There is so much over-capacity on the world market that they can't afford to send their container ships out at all, or have to do so at charter rates that don't even cover costs."

Hamburg's gateway to the world From a record year in 2014... ...to sinking revenues a year later. The port logged a cargo volume of only 6.6 million standard 20-foot containers in 2015 - a drop of 12.3 percent. That's pushed Hamburg behind the ports of Rotterdam and Antwerp in terms of container handling. The German port's struggles have mostly been brought on by slowing business with China and Russia.

Hamburg's gateway to the world Turbulent waters ahead? Axel Mattern, Port of Hamburg Marketing CEO, isn't optimistic about business this year: "The overall number of containers moved isn't going to rise," he predicted as early as February. The port's management itself is forecasting slight to flat growth. That gives it little room to maneuver as it competes with the ports of Rotterdam (photo) and Antwerp, number one and two in Europe respectively.

Hamburg's gateway to the world Bulk goods boosting business Grain, coal, oil. Tranport revenue from these goods, which aren't conveyed in containers, rose by 5.8 percent. But that did little to help the Hamburg port's sinking bottom line.

Hamburg's gateway to the world Hamburg's port is home to many jobs More than 153,000 people work directly or indirectly in the goods transport sector in Hamburg. But it isn't immediately obvious just how big of an employer the port is - much of the operations involved in moving tens of thousands of containers daily are automated.

Hamburg's gateway to the world More than 10,000 ships... ...dock annually at the Hamburg port. Cruise ships, ships carrying general and bulk cargo, tanker vessels, refrigerator ships, car transporters, tugboats, and museum boats. But container ships dominate the harbor - 70 percent of all general cargo worldwide is transported in containers.

Hamburg's gateway to the world Ships getting bigger and bigger In January, one of the world's largest container ships paid a visit to the Hamburg port. The CSCL GLOBE from China Shipping has room for 19,100 standard containers. But the giant ship could only dock at Hamburg's port half-filled. The Elbe river's waterway would have been too shallow for the ship if it were filled to capacity.

Hamburg's gateway to the world A deepening problem The Elbe river has to be deepened, to allow giant ships to cross the 100 kilometers (62 miles) between the port and the North Sea. But environmental activists are firmly opposed to the measure, fearing that fresh water sources for farmers would be threatened in the process.

Hamburg's gateway to the world Bigger not better forever Whether gigantic container vessels are here to stay remains to be seen. Ships have grown bigger in the last years and costs have been going down per container. But because global trade has slowed down, many of the big ships are no longer sailing at full container capacity. Some shipping companies have stopped buying extra large cargo vessels.

Hamburg's gateway to the world It's not just about the harbor German ports are part of an elaborate logistics system. After arriving at the port, goods have to be further transported via trains, trucks, or barges. The quality of the hinterland's network is a key factor for a port's competitiveness.

Hamburg's gateway to the world Inland logistics flourishing Around 12 percent of Germany's train-transported cargo is delivered from or to Hamburg's port. And container traffic via inland vessels has grown by 27.5 percent too. Hamburg is now the second-biggest inland port in Germany, overtaking Cologne. Author: Insa Wrede /jd



That's bad news for the banks that underwrite German shipping companies - and German banks maintain around $100 billion in shipping loans, a quarter of the world's total. The financial institutions most affected by the credit squeeze include the HSH Nordbank, the Nord Landesbank and the DVB Bank, all of which specialize in shipping finance. But they're not the only ones.

"Maritime shipping has become one of the biggest problems for German banks and it does not only affect the usual northern, coastal-based suspects like HSH Nordbank and NordLB," wrote the financial newspaper "Handelsblatt" earlier this month. "Dekabank, for example, trimmed its business outlook for 2016 by a fifth because the bank set aside an unexpectedly large amount for bad ship loans in the first two quarters."

Earlier this week, the state premier of Schleswig-Holstein, Torsten Albig, raised hackles when he suggested that in a worst-case scenario he might have to ask for help from the EU or the federal German government to cover bad shipping loans by HSH Nordbank, 85 percent of which is owned by Schleswig-Holstein and Hamburg.

Critics accused Albig himself of mismanagement and hyperbole, but there is consensus that because of HSH, Schleswig-Holstein will have to take up new lines of credit rather than pay off debts as planned. So how did this crisis come about, and is there any way for banks to abandon ship from a sector that seems to be sinking?

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Vicious circles

The current difficulties in the container shipping industry relate back to its response to the global economic crisis of 2007-8. The downturn in the world economy meant a fall in demand for international shipping and an overcapacity of container ships.

But instead of downsizing, shipping companies invested in even bigger vessels, hoping to take advantage of historically low credit rates and reduce costs.

"The story starts, in a way, in a corporate boardroom in Copenhagen in 2010," shipping expert Olaf Merk wrote for the OECD Insights website. "Then, the world's largest container shipping company, Maersk Line, decided to order a set of new container ships that were larger than the world had ever seen, able to carry 18,000 standard containers."

Competitors followed Maersk's lead and ordered mega-ships of their own, deepening the problem of over-capacity and further pushing down freight rates. The problem was further exacerbated by the opening of the widened Panama Canal last June to allow the waterway to accommodate the largest ships. That has increased competition in an already troubled sector.

"Hardly any of the big shipping companies have been turning a consistent profit," the Director of the Bremen Institute for Shipping Economics and Logistics, Burkhard Lemper, told the "Neue Westfälische" newspaper. "Many of the big shipping companies have been losing money in recent years."

It wasn't long until the crisis claimed a very prominent victim, with one of the world's ten largest shipping companies, South Korea's Hanjin, going bankrupt in August. Similar dire straits could be waiting for German shipping companies - and the banks that backed them.

Takeovers and job losses

The Hamburg Süd shipping company has been sold off

In early December, the Oetker Group announced it was selling the venerable Hamburg Süd shipping company to Maersk. It was a move widely interpreted as an attempt to get out of a sector many financial experts consider toxic. And banks with heavy investments in shipping are coming under pressure too.

Last summer the Bremer Landesbank (BLB) collapsed under the burden of shipping loans. It was taken over by NordLB at the end of last year. BLB has announced plans to fire 20 percent of its work force - its 2016 losses have been estimated at one billion euros. NordLB management has said it could handle the challenge of swallowing BLB, but its own risk provisions increased fourfold in the first three quarters of 2016.

HSH needed government guarantees to keep its risk provisions from tripling, but they still increased from roughly 200 million euros to 520 million euros. The EU Commission has put pressure on Schleswig-Holstein and Hamburg to sell off the bank by 2018. Business publication "Handelsblatt" has reported that the DVB Bank, the third-largest German shipping financer, would need a capital infusion of approximately 150 million euros from its parent company.

Many lenders are trying to shed shipping loans as fast as they can. Commerzbank, for instance, has reduced its portfolio from 18 billion to 5 billion euros, according to "Handelsblatt." But time is of the essence. Forecasts for 2017 are nothing less than dire.

Some experts think Hanjin was just the tip of the iceberg

Going down with the ships?

If anything, experts expect the crisis in the global shipping industry to get worse, as over-capacity problems persist.

"With the delivery of new ships, capacities will further grow by 6 to 7 percent," Lemper told the "Neue Westfälische" newspaper. "If you take account of ships being scrapped, that's an approximate plus of 5.5 percent. But demand will only rise 3 to 4 percent."

"Handelsblatt" quoted the NordLB as saying "new records can be expected in the number of unemployed ships" by the end of this year. That could mean more companies going bankrupt.

"There will very likely be more Hanjins," wrote Olaf Merk after the Korean giant went under last year. "Hardly any container shipping line is turning a profit nowadays and the perspectives are bleak."

That will in turn likely lead to further increases in risk provisions and further stress for many German banks. And the banks will be under enhanced scrutiny. The European Central Bank (ECB) has said that monitoring shipping loans will be one of its priorities in 2017.