Moody's: Global Shipping Industry's Negative Outlook Due To Fall In EBITDA

KUALA LUMPUR, June 23 (Bernama) -- The outlook for the global shipping industry over the next 12-18 months is negative, amid worsening earnings and the possibility of freight rates remaining depressed amid ample suppy, said Moody's Japan K.K. "We expect that the aggregate EBITDA (earnings before interest, taxes, depreciation, and amortization) of Moody's-rated shipping companies will fall between seven per cent and 10 per cent in 2016," says Mariko Semetko, Moody's Vice-President and Senior Analyst. "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," said Semetko in a statement Wednesday. Moody's Japan K.K is a wholly-owned credit rating agency and a subsidiary of Moody's Group Japan G.K. Moody's analysis is contained in its just-released report titled, "Shipping Global: Low Freight Rates and EBITDA Decline Drive Negative Outlook". The report says that conditions would remain weak for the dry bulk segment as well. In particular, freight rates are very low, despite the fact that the high levels of cancellations and scrappings would narrow the gap between supply and demand growth. The rating agency pointed out that the Baltic Dry Index remains at low levels, although it had somewhat improved from a historic low of 290 in February 2016. 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. On the container shipping segment, Moody's report says that companies operating in this segment have been affected by very weak freight rates since late 2015 and Moody's does not foresee material rate increases over the foreseeable future. It said while the decline in freight rates for the container shipping segment can be partly attributed to companies passing on the drop in fuel prices to their customers, it is also a consequence of ongoing oversupply in the market, in which companies order larger, more cost-efficient vessels. As for the current supply-demand imbalance in the container shipping segment, it said the situation would persist over the coming 12-18 months. Moody's projects that supply growth would outpace demand growth by more than two per cent in 2016 and keep freight rates low. "If bunker fuel prices increase materially, the segment's profitability will likely come under further pressure," it said. In relation to the tanker segment, Moody's says that supply growth will be large during 2016-2017, due to a heavier delivery schedule. As a result, Moody's views on the segment have become more subdued when compared with its stance in 2015. It said this segment would see falls in freight rates and EBITDA in 2016. Freight rates, nonetheless, would be above medium-term averages, because oil prices are still low and structural shifts related to refinery locations continue to support demand. The report pointed out that Moody's would consider changing the outlook for the global shipping industry back to stable if shipping supply growth exceeded demand growth by less than two per cent, or demand growth exceeded supply growth by up to two per cent, and if aggregate EBITDA growth is within a range of -5 per cent to +10 per cent year-over-year. However, it said Moody's would consider a positive outlook for the global shipping industry if the oversupply of vessels declined materially and the aggregate year-over-year EBITDA growth for companies that Moody's rates appeared likely to exceed 10 per cent. -- BERNAMA