Moody's: Global shipping industry to see moderation in excess supply; EBITDA to fall slightly

Moody's Japan K.K. says that the outlook for the global shipping industry is stable, underpinned by a moderation in the excess supply in vessels for the dry bulk and containership sectors, while EBITDA for the rated shipping companies generally will fall modestly this year on an organic basis excluding M&A.

"Signs of recovery, although slow and choppy, in the dry bulk and containership segments drive the overall stable outlook, and although market conditions are still weak, they are unlikely to worsen from 2016 levels," says Mariko Semetko, a Moody's Vice President and Senior Credit Officer.

"For these two segments, we expect supply growth will exceed demand growth by less than 2%, within our parameters for a stable view, but conditions in the tanker segment are negative due to high levels of deliveries of new ships that will keep freight rates low over the next 12 months," adds Semetko.

This outlook reflects our expectations for the fundamental business conditions in the industry over the next 12 months. We had changed our outlook to stable from negative in May 2017.

For all rated shipping companies, aggregate EBITDA will be flat at best over the outlook period, and will more likely decline 0%-3% in 2017 from last year, on an organic basis, after excluding M&As. The industry continues to undergo restructuring, and M&As will skew gross EBITDA.

Nonetheless, cost cutting by companies and industry restructuring have arrested the double-digit decline in aggregate EBITDA seen last year. A fall in EBITDA of up to 3% would be within the parameters for a stable outlook. We would consider changing the outlook to negative if we come to expect a decline of more than 5%.

Moody's further concludes that the overall operating environment is stable at a low level, and while market conditions are still weak, they will not appreciably worsen from 2016 levels.

The industry came off of a very weak 2016 when freight rates bottomed for containerships and dry bulk. Recent restructurings, on-going cost cuts, and industry consolidation and alliances in the containership segment will stabilize the earnings of our rated universe as a whole.

The sector's average fuel price was higher in the first half of this year than in the first half of last year. Still, prices are relatively low and we do not expect a significant and rapid increase from current levels such that fuel will become a material negative credit driver.

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