Fitch Ratings: Gloomy Outlook for Global Shipping amid Overcapacity Woes

The outlook for the global shipping industry remains negative, according to Fitch Ratings, as the rating agency doesn’t expect a material improvement in market fundamentals in 2018 due to lingering overcapacity.

As explained, both container and bulk markets show signs of a revival, but the longevity of this trend remains uncertain due to limited adherence to capacity discipline in the sector. Improving market sentiment and a focus on scale and vessel size have stimulated new orders. The supply and demand dynamics are likely to support container, bulk and LNG rates, but tanker rates could remain under pressure.

The tanker shipping segment is the most exposed following a glut of new vessel deliveries in 2017.

“We expect demand for tankers to grow by around 4% in 2018, helped by rising global oil consumption, higher US exports and declining oil inventories. But this would still only broadly match the expected growth in tanker supply. Rates, therefore, may not fall further, but a sustained increase is unlikely,” Fitch Ratings said.

Container shipping freight rates have increased this year, but overcapacity makes this recovery fragile and previous rate increases have proved short-lived, the rating agency added. Any improvement in market sentiment tends to stimulate new orders, and this happened again when new orders, including for mega-ships, surged in the third quarter of 2017.

To remind, two container shipping giants, MSC and CMA CGM, have ordered a total of twenty 22,000 TEU mega boxships at Korean and Chinese shipyards.

“We expect supply growth to be over 5.5% in 2018, outpacing a likely over 4.5% increase in container transport volume growth. A sustainable recovery in rates will need continuous and consistent capacity discipline in the industry. This could be driven by consolidation in the sector over the medium term,” Fitch added.

According to the agency, the recent recovery in dry bulk shipping rates may also prove short-lived, although unlike for the other segments the demand is expected to outstrip the growth in vessel supply in 2018.

The market balance will be helped by the low level of new vessel orders for the last three years. China will remain the key driver for dry bulk commodities imports and trade, and the sector is therefore particularly sensitive to Chinese GDP growth, which is expected to be 6.4% in 2018, Fitch Ratings concluded.

Image Courtesy: Pixabay

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