Moody’s: Steady Winds Ahead for Global Shipping Industry

The outlook for the global shipping industry is stable, according to Moody’s Japan K.K., reflecting expectations for low single-digit percentage aggregate year-over-year EBITDA growth for its rated shipping companies during the coming 12-18 months.

“This growth rate is lower than the mid-to-high single-digit range we expected earlier in the year because some companies have reduced their demand expectations and freight rates remain low amid oversupply,” says Mariko Semetko, a Moody’s Vice President and Senior Analyst.

“The EBITDA growth will be driven primarily by continued cost reductions stemming largely from weak oil prices, which reduce shipping companies’ fuel costs and keep demand high for oil tankers,” adds Semetko.

Moody’s also expects that the prices for bunker fuel will remain low over the outlook period, in line with expectations for crude oil prices to which bunker fuel prices are correlated. Fuel is a significant expense for shipping companies and low fuel costs therefore facilitate EBITDA growth, particularly for containership operators.

However, while the outlook for each of the three main shipping segments — dry bulk, container ships and tankers — is stable, business conditions, such as demand and supply, vary.

EBITDA growth will likely be lowest for the dry bulk segment because China’s economic slowdown will keep demand low, while excess supply will remain most pronounced in the containership segment, particularly in 2015, but EBTIDA growth is expected from fuel-cost savings over the outlook period. By contrast, weak crude oil prices will continue to drive demand and EBITDA growth for tankers, Moody’s adds.

Moody’s believes that downside risks remain high and would consider changing the outlook to negative if signs emerged that the growth in shipping supply will exceed demand growth by more than 2%, or that aggregate EBITDA will decline by more than 5% year over year.

On the other hand, Moody’s would consider a change to a positive outlook if the oversupply of vessels declines materially and aggregate year-over-year EBITDA growth appears likely to exceed 10%.

The industry outlook has been stable since April 2014, when Moody’s changed it from negative.

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