A ratings downgrade confirms that the green shoots of recovery will not be appearing any time soon
Shipping had managed to cling onto reasonable ratings from global agencies despite an evident and lingering depression, but that run of luck came to an end with Fitch’s recent downgrade.
In its 2016 Outlook: Global Shipping, Fitch revised the global shipping sector outlook for 2016 to negative from stable in 2015 citing “muted global trade growth” and an economic slowdown in emerging markets that will “exacerbate overcapacity, leading to declining and volatile freight rates”.
Recognising that performance will vary depending on the ship type, dry-bulk was highlighted as a sector that remain under pressure, while tanker and LNG were expected to fare better.
Of particular concern was the slowdown in China’s growth accounting, as it does, for two-thirds of global iron ore imports and 20% of world coal imports.
“The financials of smaller, unrated, especially dry-bulk shippers will remain stretched [in 2016], which will probably lead to more bankruptcies”
“Weaker demand growth will increase overcapacity, the key factor blighting the shipping sector’s recovery prospects and putting pressure on freight rates,” said Fitch.
Defensive measures to ward off losses will continue into 2016, complemented by continued lower bunker prices and lay-up of ships. But Fitch believes these measures are “insufficient to lead to a protracted recovery in the sector”. It says that better discipline is needed when it comes to ordering coupled with a pick-up in demand if the sector is ever to reach a sustained equilibrium.
“The financials of smaller, unrated, especially dry-bulk shippers will remain stretched [in 2016], which will probably lead to more bankruptcies,” said Fitch. “Tanker shipping companies will outperform their peers in other segments due to more moderate fleet growth and healthy demand resulting from oil stockpiling and high refinery throughput due to low oil prices.”