Moody's report holds negative outlook for shipping over next 18 months

Moody's report holds negative outlook for shipping over next 18 monthsTHE oversupply of vessels will likely continue to outstrip demand in most shipping services and the outlook for the global shipping industry will remain negative over the next 12-18 months, said Moody's Investors Service.

"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 sea borne deliveries," said Moody's vice president Marco Vetulli. 

"We expect aggregate EBITDA in the global shipping industry to decline five per cent - 10 per cent in 2013," he said, reflecting the findings of Moody's latest industry report, Global Shipping Industry: Sustained Oversupply Keeps Outlook Negative.

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. 

Moody's said that it could change its outlook to stable if it believed that the supply/demand gap is likely to narrow over the coming 12-18 months, such that supply exceeds demand by no more than two per cent, or demand exceeds supply by up to two per cent. For the outlook to stabilise, the industry's aggregate EBITDA growth would also need to be within a range of -5 to +10 per cent.

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, the agency said.