For the first time since June 2011, credit rating company Moody’s Investors Service has upgraded the outlook for the global shipping industry from negative to stable, forecasting that earnings will expand slightly and the overcapacity situation will not worsen over the medium term.
“The revision reflects our expectation that the global industry’s aggregate EBITDA will rise by mid-single digits in percentage terms year-over-year in 2014, in line with our -5% to 10% growth range for a stable outlook,” said Mariko Semetko, a Moody’s assistant vice president and analyst.
“And while overcapacity remains a concern, we believe industry conditions are at a trough and that the supply-demand gap will not worsen materially,” Semetko added. “In this environment, we expect the supply of vessels will exceed demand by no more than 2%, or that demand will exceed supply by up to 2%.”
Reflecting expectations for the next 12 to 18 months, the outlook is contained in a new report titled “Change to Stable Outlook for Shipping Sector Reflects EBITDA Growth.”
In the report, Moody’s notes that cost reductions realized from lower bunker prices, slower steaming, and efficiency savings have driven the growth in EBITDA (earnings before interest, taxes, depreciation, and amortization).
Still, the report describes market conditions as remaining “tepid,” but not deteriorating, although freight rates for the container segment in particular will continue to be “under pressure.”
The sector is also saving on costs through postponing and cancelling deliveries of new vessels, scrapping the oldest and most inefficient vessels, and idling vessels.
Moody’s said it would revert the outlook to negative if the supply-demand imbalance widens by more than 2 percent, or if the industry’s aggregate EBITDA declines by over 5 percent.
For the research firm to consider a positive outlook, the industry should be able to show that oversupply has declined significantly and total EBITDA growth exceeds 10 percent.
Photo: Sludge G
