Moody’s Outlook on Global Shipping Sector Stays Negative

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As the shipping industry is expected to see its earnings worsen, while freight rates are likely to remain “depressed amid ample supply,” the outlook for the global shipping industry over the next 12-18 months is negative, according to Moody’s rating agency.

The aggregate EBITDA of Moody’s-rated shipping companies is expected to drop by 7%-10% in 2016, Moody’s Vice President and Senior Analyst, Mariko Semetko, said, adding that “such a result is much worse than the low-single-digit percentage decline we forecast in March 2016, when we changed our outlook for the industry to negative from stable.”

In its latest report on the global shipping, Moody’s said that conditions will remain weak for the dry bulk and container shipping segments as oversupply and demand slowdown persist.

Freight rates are very low, despite the fact that the high levels of cancellations and scrappings will keep the gap between supply growth and demand growth narrow.

Moody’s expects demand in the dry bulk segment to remain subdued in 2016 and at a similar level to 2015, as China’s slowdown continues to weigh on demand for commodities. At the same time, a large amount of new vessel deliveries are planned for 2016.

Additionally, Moody’s said that it does not foresee material rate increases in the container shipping segment over the foreseeable future.

The current supply-demand imbalance in the container shipping segment is expected to persist over the coming 12-18 months.

In relation to the tanker segment, Moody’s says that supply growth will be large during 2016-2017, due to a heavier delivery schedule. This segment is expected to see falls in freight rates and EBITDA in 2016. Freight rates nonetheless will be above medium term averages, because oil prices are still low and structural shifts related to refinery locations continue to support demand.

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