Moody´s has revised the outlook for the global shipping industry to stable from negative. The revision reflects an 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 the company´s -5% to 10% growth range for a stable outlook.
Overcapacity remains a concern, but Moody´s believes industry conditions are at a trough and that the supply-demand gap will not worsen materially. It is expected that the supply of vessels will exceed demand by no more than 2% or that demand will exceed supply by up to 2%. The industry outlook has been negative since June 2011.
Cost reductions drive EBITDA growth. Bunker fuel prices have receded to around $600 per ton from their peak of nearly $740 per ton in February 2012. The lower prices, combined with slow steaming and the use of newer and more efficient vessels, have reduced shippers’ fuel costs, contributing to earnings growth.
Market conditions remain tepid but are not getting worse. Freight rates for the dry-bulk segment are showing some signs of improvement but remain at very low levels. While there is significant volatility, the average daily spot rates for Capesize vessels since late 2013 have fluctuated between about $10,000 and $35,000 per day, compared to rates of less than $5,000 a year ago.
Freight rates in the container segment remain under pressure and Moody´s expects them to remain volatile in the next 12-18 months. Market discipline through actively managing supply by postponing and cancelling deliveries, scrapping the oldest and most inefficient vessels, idling vessels and slow steaming would help stem further meaningful deterioration in box rates for container ship operators.
For crude tankers, there is not enough GDP growth for demand to absorb the current oversupply. As a result, meaningful sustained increases in spot rates in the next 12-18 months is not expected.
Oversupply remains a concern. Moody´s expects the supply of vessels will continue to outstrip demand for most shipping services over the next 12-18 months. Beyond this outlook period, continued demand and EBITDA growth will be contingent on stronger growth in global GDP and fewer orders for new ships, to allow demand to outstrip supply, driving stronger freight rates across vessel classes.