Even though the demand for shipping services is likely to remain solid in 2011, underpinned by positive trends in world trade, the outlook for the industry over the next 12–18 months is negative, primarily because of a continuing oversupply of vessels, says Moody’s Investors Service in an Industry Outlook report published
in July. “Industry conditions are likely to deteriorate over the next
12–18 months, with the dry-bulk segment likely to be the hardest hit in 2011 because of the large size of its order book,” says Marco Vetulli, a vice president/senior credit officer in Moody’s Corporate Finance Group.
“The current dry-bulk order book is equal to approximately 46% of the tonnage on the water, and around 80% of these vessels are due for delivery over the next two years, creating a supply- demand imbalance that will continue to depress freight rates,” adds Vetulli.
The dry-bulk companies that Moody’s rates are among the most efficient operators in the industry, and are therefore better positioned to manage these issues compared with peers that have higher cost bases. Moody’s expects that freight rates on average will be substantially lower in 2011 than in 2010, and consequently the degree of negative rating pressure that the players will face will depend on the degree of their spot-market exposure.
Moody’s believes that Japanese shipping conglomerates are being impacted to a lesser extent by the negative trends affecting other global shipping companies. This is because their scale, diversification and strong relationships with customers act as mitigating factors. However, the earthquake and tsunami in Japan have disrupted freight flows, especially in the car carrier business, which is credit negative for conglomerates.
Nevertheless, Moody’s expects the effects of the disruption to be relatively short-lived and for volumes to recover to pre- earthquake levels in the fourth quarter of this year.