Moody’s Investors Service has a negative outlook for all three shipping sectors—dry bulk, tankers and liners— in Asia-Pacific for the next 12-18 months, Exim News Service reported.
A new report by Moody’s says that the global economic downturn, tightening bank credit, increased volatility in currencies and financial markets have aggravated the already surplus shipping capacity amid a sharp drop-off in demand for shipments of containerised goods, oil, and bulk commodities.
Such adverse developments may last for an extended period and are the primary drivers for the negative outlook.
Mr Peter Choy, the report’s lead author and a senior credit officer at Moody’s, says, "Although the credit crisis may result in the cancellation of some newbuilding orders, a correction in the excess supply from a sizeable order book will take a long time."
He notes that the dry bulk sector has been worst hit. "A freezing of trade credit has exacerbated a slowdown in demand for commodities and contributed to the recent, unprecedented plunge in the sector’s Baltic Dry Index."
Ms Elizabeth Allen, a senior credit officer at Moody’s and the report’s co-author, says, "Unstable operating costs resulting from volatile bunker expenses and lower freight rates have undermined profitability, earnings and other financial fundamentals in all three sectors." She notes that such instability could put further pressure on ratings, which for Moody’s-rated issuers remain stable despite the negative outlooks for the overall sectors.
According to Ms Allen, "Long-term agreements on many vessels, adequate liquidity through good access to banks, diversified trade and types of vessels all support rated shipping companies such as MISC, BW Shipping, NYK Line, and MOL."
She describes some mitigating factors and compensatory activities taken by shipping companies generally, saying, "In response to high bunker costs, companies have hedged their exposure to fuel prices and adopted various other measures such as slow steaming, entering into alliances, or chartering out their vessels.
"Similarly, the tight credit environment has caused a number of issuers to postpone or cut back their expansion plans as they try to maintain adequate liquidity and financial flexibility."