The container and dry bulk markets are seeing improvement thanks to high levels of vessel scrapping and an uptick in demand, but prospects for the tanker segment are less encouraging, according to a recent research report from the credit ratings agency.
Credit rating agency Moody’s Investors Service says the outlook for ocean shipping is stabilizing, a trend that should prove “credit positive.”
“We are changing our outlook on the global shipping sector to stable from negative, due to our expectations that aggregate EBITDA (earnings before interest taxes, depreciation and amortization) of rated shipping companies will remain at similar levels in 2017 as last year, excluding M&A and spinoffs,” the firm said in a research report issued this week.
“Unlike last year, when the industry saw double-digit EBITDA declines, the operating environment has bottomed and earnings will remain stable, although at a low level this year,” it said, cautioning that “potential material shipping sector earnings growth will be more than 12 months away.”
The industry is benefiting from continued ship scrapping, which Moody’s says is slowing global capacity increases. Some of this demolition activity is a result of the expansion of the Panama Canal which has led some owners of older panamax ships to sell these smaller, less-efficient vessels for scrap. Tightening environmental regulations, such as the International Maritime Organization’s Ballast Water Management Convention, are also resulting in more ships going to the breakers.
In the container industry, Moody’s says “supply growth will continue to outpace demand growth in 2017, causing freight rates to remain low but higher than last year’s.”
Deliveries of new containerships were at a much lower level last year than planned, but are expected to be higher this year, according to the report.
The Shanghai (Export) Containerized Freight Index, which tracks both spot and contractual freight rates was at 818 on May 5, and as high as 878 on February 3 this year, far above the trough of 620 on April 8, 2016. On average, the SCFI was higher in the first four months of this year compared to the first four months of 2016.
Moody’s said it expects continuing consolidation in container shipping “with companies pursuing economies of scale.”
In dry bulk shipping, “freight rates have improved on the back of a decrease in orderbook combined with continuous demand from China,” said Moody’s.
The Baltic Dry Index, which measures composite bulk shipping rates, hit 1,338 on March 29, 2017, up from a low of 290 on Feb. 11, 2017. While spot rates are still below operating expenses for many vessel classes, Moody’s says this is being partially offset by long-term contracts signed before freight rates fell sharply in 2015.
In addition, China’s demand for iron ore and coal is increasing, having reached 1 billion metric tons for the first time in 2016 and continuing at an even faster pace so far this year.
The dry bulk orderbook as a percentage of fleet has decreased 8.5 percent in March 2017 from 14.9 percent year ago, “the lowest level over the past ten years,” the firm said, citing Drewry Maritime Research.
Moody’s said it has a negative view of the tanker segment, however, noting that it suffers from persistently high supply that is putting downward pressure on already low freight rates. A large number of new tanker deliveries this year and next means high supply will likely keep rates low over the next 12 months at least.
“We expect EBITDA will decline in 2017 against 2016, with the full-year effect of low earnings which started mid-last year,” Moody’s said.
Moody’s: Outlook for ocean shipping stabilizing
