Credit Risk & Underwriting
Liquidity Risk for Shipping Companies
Summary
Liquidity risk is the inability to meet cash obligations when due despite potentially positive long-term vessel value or accounting profits.
Why this matters in ship finance
Volatile freight, dry-docking, regulatory payments and debt maturities make liquid reserves economically important.
The concept
Available liquidity depends on cash access, restricted accounts, permitted dividends, credit lines, receivable timing and emergency financing. Shipping markets may simultaneously lower asset sale prices.
How it is used in practice
Build a rolling cash waterfall incorporating receipts, OPEX, planned and unplanned capex, interest, amortisation and covenant reserve requirements.
Practical issues
Positive EBITDA is not equivalent to accessible cash. Restricted or trapped cash may be excluded from covenant definitions.
How ShipFinance.ai uses this concept
Offer rolling liquidity forecasts, funding-gap alerts and eligible-cash covenant checks.
Key takeaways
- Cash timing matters
- Restricted cash can overstate headroom
- Liquidity can deteriorate before insolvency
Primary legal, rule and scholarly sources
- Schinas & Kewitsch (2015), Loans and Risk Management Considerations, in BK3 - scholarly chapter
- Schinas, Grau & Johns (eds.), The HSBA Handbook on Ship Finance (Springer, 2015) - scholarly reference, not legislation
- EBA/GL/2020/06 - Guidelines on loan origination and monitoring (in-scope institutions; supervisory guidance)