"Substantial oversupply will constrain freight rates for at least the next 18 months, particularly weighing on earnings in the dry-bulk and crude oil tanker segments, while falling US crude oil imports and declining European demand are likely to depress seaborne deliveries," says Marco Vetulli, a Vice President - Senior Credit Officer in Moody`s Corporate Finance Group and author of the report. "We expect aggregate EBITDA in the global shipping industry to decline by around 5%-10% in 2013."
Shipping companies concentrated on the crude oil tanker segment or focused on the dry-bulk sector, such as Navios Maritime Holdings, Inc. (B2 negative), are more likely to be adversely affected by these trends.
Moody`s outlook for the product tanker segment is more favourable. Companies, such as Sovcomflot JSC (Ba2 stable) and Navios Maritime Acquisition Corp. (B3 stable), could continue to benefit from demand growth linked to the shift in refining capacity to Asia and the Middle East, leading to a slight improvement in freight rates.
Moody`s does not expect to see a major improvement in the container segment`s financial performance in 2013 as it is the most sensitive to bunker fuel costs, which are likely to remain high. However, the container segment has the potential to outperform other shipping sectors this year if players maintain market discipline through proactive fleet management, such as laying up ships to reduce supply, and control costs.
Rated Japanese conglomerates -- Nippon Yusen Kabushiki Kaisha (NYKK, Baa2 negative) and Mitsui O.S.K. Lines, Ltd. (MOL, Baa3 negative) -- are better positioned to ride out choppy conditions because they have healthy liquidity, benefit from solid relationships with banks and are part of large groups.
Shipping finance will remain tight with selective bank lending continuing. In general, rated shipping companies have stronger liquidity than the industry average, which should enhance their ability to weather challenges posed by the weak operating environment. The strongest operators may also have access to bond financing.
Moody`s could change its outlook to stable if it believes that the supply-demand gap is likely to narrow over the coming 12-18 months, such that supply exceeds demand by no more than 2% or demand exceeds supply by up to 2%. For the outlook to stabilise, the industry`s aggregate EBITDA growth would also need to be within a range of -5 to +10%. Market prospects should improve in 2014 as the amount of oversupply declines. However, downside risks remain high as the global economic recovery appears to have lost momentum in recent months.