At the end of 2008, the global outlook was looking pretty bleak. The banking crisis and subsequent global economic downturn ended up affecting many businesses sectors, including oil and gas, manufacturing, logistics, and the shipping industry. Shipping businesses in particular ended up enduring the deepest and longest downturn in their history, and the incomes of the industry's biggest players, such as Maersk Line and Hapag-Lloyd had to yet endure another slump during 2015. Shipping industry incomes from March 2015 until March 2016 are plotted in the following chart:[1]

 
 
In this disheartening context however, there are in fact a number of measures which can be implemented in order to maintain the sustainability of shipping companies. These include the sale of shares or the taking on of loans in order to inject fresh money into struggling businesses. Since the shipping industry is considered a high-capital business, access to loan facilities can offer a lifeline to companies which are feeling the pinch during the ongoing economic downturn.
 
However, it has to be acknowledged that it is common practice for creditors to avoid putting themselves in vulnerable situations through the granting of unsecured funding to struggling companies. Instead, asset-backed loan agreements are favored by creditors.  For shipping companies, one obvious asset which can be used to secure loans is, of course, their ships. In Indonesia, ships are allowed to be used as collateral through a process of security-interest hypothecation.
 
With all of this in mind, this week’s Indonesian Law Digest (ILD) will analyze and discuss issues specifically relating to ship hypothecation.  Our analysis will deal specifically with the following topics: