The rating agency Moody’s said it has revised its outlook for the global shipping industry to stable from negative, reflecting its expectation that the shipping industry’s aggregate earnings before interest, tax, depreciation and amortization (EBITDA) will rise by mid-single digits in percentage terms year-over-year in 2014.
Moody’s said it had seen the shipping industry as having a negative outlook since June 2011.
“While overcapacity remains a concern, we believe industry conditions are at a trough and that the supply-demand gap will not worsen materially. We expect the supply of vessels will exceed demand by no more than 2 percent or that demand will exceed supply by up to 2 percent,” the agency said.
Moody’s said EBITDA growth was being driven by cost reductions, and noted that bunker fuel prices have receded to around $600 per ton from their peak of nearly $740 per ton in February 2012.
“The lower prices, combined with slow steaming and the use of newer and more efficient vessels, have reduced shippers’ fuel costs, contributing to earnings growth,” said the company, adding that “Market conditions remain tepid but are not getting worse.”
Moody’s added that:
- In the dry-bulk segment, freight rates "are showing some signs of improvement but remain at very low levels. While there is significant volatility, the average daily spot rates for Capesize vessels since late 2013 have fluctuated between about $10,000 and $35,000 per day, compared to rates of less than $5,000 a year ago.”
- In the container segment, freight rates "remain under pressure and we expect them to remain volatile in the next 12-18 months. Market discipline through actively managing supply by postponing and cancelling deliveries, scrapping the oldest and most inefficient vessels, idling vessels and slow steaming would help stem further meaningful deterioration in box rates for container ship operators.”
- "For crude tankers, there is not enough GDP growth for demand to absorb the current oversupply. As a result, we do not expect meaningful sustained increases in spot rates in the next 12-18 months."
Moody’s said it would consider changing the outlook for the global shipping industry back to negative if it sees “signs that the supply-demand gap is likely to widen such that supply exceeds demand by more than 2 percent. The outlook could also revert to negative if signs that the industry’s aggregate EBITDA will decline by over 5 percent appear, it said.
“Downside risks remain high as the order book continues to increase and economic growth in China may be slowing,” it added.
On the other hand, Moody's said it would consider upgrading its view of the industry to positive “if the amount of vessel oversupply declines materially and if the industry’s aggregate EBITDA growth exceeds 10 percent.”