The outlook for the world’s shipping sector in the next 12 to 18 months remains negative with earnings expected to plummet and recovery likely to be long and bumpy, according to the newest report of Moody’s Investors Service.
Its outlook for global shipping has been negative since March, 2020.
“We now expect the aggregate EBITDA of rated shipping companies to fall by around 16%-18% in 2020, nearly doubling from our previous projection of a drop of around 6%-10%,” announced Maria Maslovsky, Vice President – Senior Analyst.
Despite a sharp decline in the Baltic Dry Index (BDI) recently reversing, market conditions for the dry bulk sector remained highly volatile.
And while unprecedented capacity adjustments is good news for the container sector, a resurgence in Covid 19 infections will endanger the fragile demand for finished and semi-finished goods in economies like North America and Europe.
The outlook for the dry bulk and container shipping segments remains negative with supply likely to exceed demand significantly.
Container shipping has experienced negative pressures from reduced demand for finished and semifinished goods in the advanced economies in North America and Europe, as coronavirus brought these economies to a halt.
Although the industry has taken steps to reduce capacity by canceling — or blanking — sailings and the supply of new vessels this year is likely to be slightly lower than last year, the recovery is likely to be slow and uneven with a threat of a second wave of the pandemic endangering fragile demand.
“We expect demand for container ships to remain weak because it is primarily driven by the patterns of international trade of sem-ifinished and finished goods,” according to Maslovsky.
However, Moody’s outlook for the tanker segment is stable as tanker rates have benefitted tremendously from high demand for floating storage.
The temporary dislocation in the oil market with high demand for floating storage pushed up tanker rates.
Overall, supply will significantly exceed demand in key shipping segments for the balance of 2020 and likely into 2021, according to Moody’s.
The rating firm’s expectations reflect lockdown measures introduced in the wake of the coronavirus pandemic as well as the related global economic downturn.
Continued restrictions on the movement of people, as well as some goods, also bode ill for the global shipping industry’s prospects.
Moody’s would consider revising the outlook to stable if both the oversupply of vessels declines materially such that shipping supply growth does not exceed demand growth by more than 2% and year-over-year aggregate EBITDA growth appears likely to be between -5% and +10%. It would consider revising the outlook to positive if the oversupply of vessels declines materially and aggregate year-over-year EBITDA growth appears likely to exceed 10%.