Stable outlook for global shipping, recovery hampered by oversupply

The fundamental credit outlook for the global shipping industry is stable, reflecting the fact that conditions are unlikely to deteriorate further in the sector, Moody's Investors Service said in a new Industry Outlook. However, the rating agency cautions that some segments, especially containers, will continue to under-perform throughout 2010.
"While the stable outlook is based on the belief that the main industry drivers are not likely to deteriorate further, we do not anticipate a full recovery of the main players to start until the end of 2011," said Marco Vetulli, a Moody's Vice President and author of the report. "Furthermore, we believe the landscape of the industry may be quite different on the other side of the recovery."
In the report, Moody's notes that the long-term drivers of growth remain robust for shippers involved in transporting commodities such as coal, iron ore, oil and grain. These sectors will absorb the number of new vessels scheduled to be on the water in the next few years relatively easily. The rating agency says that although the outlook for container shipping is gloomier because of over-supply, there are other considerations supporting its stable outlook. These include a boost in demand due to an increase in containerisation, which in turn is driven by improvements in ports in emerging economies. In addition, the three largest ports in the world — Singapore, Shanghai and Hong Kong –have all seen some pick-up in throughput in the past few months.
"Sustainable improvement will require growth in trade flows followed by reduction in capacity, both of which will take some time," cautioned Vetulli. "This means shipping industry dynamics could remain fragile for a number of quarters." However, the rating agency acknowledges that the stronger companies, which include many of its rated issuers, will recover more quickly than the industry average, which could significantly strengthen their market position.
Overall, Moody's expects that credit metrics for shipping entities will remain subdued during the next 12 months and start to recover in 2011. In addition, despite a slow return to more normal conditions in the financial markets, shipping finance will remain tight and banks will remain selective. This means liquidity will remain a discriminating factor in the foreseeable future.