Moody’s: Global Shipping Outlook Remains Negative

The outlook for the global shipping sector for the coming 12 to 18 months remains negative, according to Moody’s new report. 

The key drivers of the negative outlook are a combination of expectations that the global economy will shrink in 2020 due to the impact of the pandemic and the road to recovery will be long and bumpy. 

The outlook for the sector has been negative since March 2020. 

Moody’s expects the global economy to contract by around 11.9 percent this year due to coronavirus-induced drop in consumer demand and investments as well as supply chain disruptions due to the lockdowns. 

Continued restrictions on the movement of people, as well as some goods, also bode ill for the global shipping industry’s prospects. 

The rating agency believes the pandemic will complicate and possibly delay US-China “phase two” trade negotiations, and UK-EU and US-EU negotiations. 

“We now expect the aggregate EBITDA of rated shipping companies to fall by around 16%-18% in 2020, nearly doubling from our previous projection of a drop of around 6%-10%,” said Maria Maslovsky, Vice President – Senior Analyst. 

The outlook for the dry bulk and container shipping segments remains negative with supply likely to exceed demand significantly. 

However, the outlook for the tanker segment is stable helped by a temporary dislocation in the oil market with high demand for floating storage pushing up tanker rates. 

One of the key factors impacting recovery is the oversupply of vessels exceeding the demand in key shipping segments, which is likely to extend into 2021. 

What is more, there is a shift toward more regional supply chains and domestic production of certain types of goods which would lead to a reconfiguration of a number of shipping routes, according to Moody’s, although the ultimate effect on tonne-miles, a key revenue driver, is uncertain at this point. 

“The crisis has also laid bare the vulnerabilities of just-in-time supply chain management and could prompt companies to consider moving supply chains closer to their final markets and building redundancies,” Moody’s said. 

Consumer demand is expected to recover in the second half of the year. 

The rating agency said it would consider revising the outlook to stable if both the oversupply of vessels declines materially such that shipping supply growth does not exceed demand growth by more than 2% and year-over-year aggregate EBITDA growth appears likely to be between -5% and +10%. 

In order for the outlook to be revised to positive, year-over-year aggregate EBITDA growth would have to exceed 10%, and the vessel oversupply would have to be slashed.