Moody’s: Shipping to end 2020 better than expected

The rating agency Moody’s has revised its outlook for the shipping industry from negative to stable as the sector outperformed the agency’s projections for this year.

The rating agency said the outlook for the global shipping industry had been negative since March 2020 coinciding with the impact of the COVID-19 pandemic on the global economy.

“We expect the aggregate EBITDA of the shipping companies we rate globally to grow by 3%-5% in 2021, driven by a recovery in the dry bulk segment from pandemic lows and the continuance of good market fundamentals for container shipping,” Moody’s said.

“However, this is tempered by a likely decline in EBITDA in the tanker segment next year because of tough comparisons with record charter rates in the first half of 2020.”

Moody’s expects the industry’s overall supply-demand balance to improve in 2021, which is the other main reason for the outlook change. However, risks remain as ongoing pandemic fears and a resurgence in coronavirus infections in some major economies could hinder a recovery in demand for shipping services in 2021.

One of the major positive outcomes from the challenges the pandemic posed on the market has been limited supply of new vessels and capacity management, which are likely to serve as a cushion to adverse market conditions, according to the rating agency.

Namely, order books for all three shipping segments remain at record low levels in relation to their total fleets.

“We would consider changing the outlook to negative if we see signs that shipping supply growth will exceed demand growth by more than 2% or that comparable EBITDA will decline by more than 5% year over year,” Moody’s added.

The rating agency anticipates that in the container shipping segment, carriers could resume cancellations of sailings to reduce capacity to match demand. Nevertheless, the tanker and dry bulk markets will be more sensitive to changes in demand during 2021 because they are much more fragmented than the global container market where capacity is partly organised through alliances.

Moody’s changed the outlook from negative to stable for both the container shipping sector and dry bulk shipping, while the tanker sector’s outlook was downgraded from stable to negative.

The container shipping sector is expected to sail in a stable operating environment in 2021 amid balanced supply and demand coupled with disciplined capacity management by carriers, low bunker prices and increasing freight rates.

“Even if the global economic recovery takes longer to materialise, given the rising infections in Europe and the US, carriers’ capacity management should continue to keep freight rates broadly stable,” Moody’s said.

The dry bulk’s outlook is expected to be stable amid anticipated gradual improvement of the market environment over the next 12-18 months. The recovery in key dry-bulk commodities has been more or less driven by China, where import volumes of iron ore were 11% higher in the year to date to August than in the same period in 2019. The supply-demand balance is also set to improve.

“Assuming the global economy recovers in 2021, we foresee dry bulk demand growing by 3%-5% versus supply growth ranging from 0.5% to 2%, depending on the level of scrapping activity and order delays/cancellations. Still, downside risks are certainly evident, including protracted lockdowns that would curb demand,” the agency added.

Commenting on the tanker market’s outlook, the agency said the record high charter rates driven by major demand for floating storage in Q2, 2020 is not likely to repeat itself in 2021 resulting in the likely contraction of EBITDA.