Outlook for global shipping industry stable, says Moody’s

KUALA LUMPUR: Moody's Japan K.K. says that the outlook for the global shipping industry is stable, aided by signs of a recovery in the dry bulk and containership segments. 

In its report issued on Wednesday it said while market conditions are still weak, they are unlikely to worsen from the levels seen for both segments in 2016.

“We expect that supply growth will exceed demand growth by less than 2%, or within our parameter for a stable view. Freight rates in these two segments will also gradually increase,” it said in its report issued out of Tokyo. 

Moody's conclusions are contained in its recently released report on the global shipping sector, "Outlook update: Shipping - Global, stable outlook reflects easing of dry bulk, containership excess capacity; flat Ebitda ". 

In terms of earnings, it said after excluding M&As and spinoffs, the aggregate earnings before interest, tax, depreciation and amortisation (Ebitda) rated shipping companies will remain at similar levels in 2017 as last year. 

Unlike 2016, when the industry saw double-digit Ebitda declines, the operating environment has bottomed and earnings will remain stable, although at a low level during 2017. 

However, a material level of industrywide earnings growth will be beyond its 12-month horizon. 

The international ratings agency also said the continued scrapping of Panamax-class vessels driven by the expansion of the Panama Canal and of older ships driven by tightening environmental regulations are likely to continue, partly offsetting global capacity expansion, a credit positive. 

As indicated, Moody's view on the dry bulk segment is stable. Freight rates have improved on the back of a decrease in order books combined with continuous demand from China. 

“Our view on the containership segment is also stable, as supply growth will continue to outpace demand growth in 2017, causing freight rates to remain low, but higher than last year's levels. 

“Meanwhile, our view on the tanker segment is negative, reflecting high supply and low freight rates. The segment faces very high levels of scheduled deliveries for 2017 and 2018, a credit-negative development because it will keep freight rates low over the coming 12 months. 

“For the shipping industry generally, we would consider changing the outlook back to negative if we see signs that shipping supply growth will exceed demand growth by more than 2% or that aggregate Ebitda will decline by more than 5% year over year. Downside risks remain high. 

“Conversely, we would consider a positive outlook if the oversupply of vessels declines materially and aggregate year-over-year Ebitda growth appears likely to exceed 10%,” said Moody’s.