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Announcement:

Moody's: Global shipping industry's negative outlook due to fall in EBITDA

Global Credit Research - 22 Jun 2016

Tokyo, June 22, 2016 -- Moody's Japan K.K. says that its outlook for the global shipping industry over the next 12-18 months is negative.

"The negative outlook reflects our expectation that earnings will worsen, with freight rates likely to remain depressed amid ample supply," says Mariko Semetko, a Moody's Vice President and Senior Analyst.

"We expect that the aggregate EBITDA of Moody's-rated shipping companies will fall by 7%-10% in 2016," adds Semetko. "Such a result is much worse than the low-single-digit percentage decline we forecast in March 2016, when we changed our outlook for the industry to negative from stable."

Moody's analysis is contained in its just-released report titled "Shipping Global: Low Freight Rates and EBITDA Decline Drive Negative Outlook".

Moody's report says that conditions will remain weak for the dry bulk segment. In particular, freight rates are very low, despite the fact that the high levels of cancellations and scrappings will keep the gap between supply growth and demand growth narrow.

Moody's points out that the Baltic Dry Index remains at low levels, although has somewhat improved from a historic low of 290 in February 2016.

Moody's expects demand in the dry bulk segment to remain subdued in 2016 and at a similar level to 2015, as China's slowdown continues to weigh on demand for commodities. At the same time, a large amount of new vessel deliveries are planned for 2016.

On the container shipping segment, Moody's report says that companies operating in this segment have been affected by very weak freight rates since late 2015 and Moody's does not foresee material rate increases over the foreseeable future.

Moody's says that while the decline in freight rates for the container shipping segment can be partly attributed to companies passing on the drop in fuel prices to their customers, it is also a consequence of ongoing oversupply in the market, in which companies order larger, more cost-efficient vessels.

As for the current supply-demand imbalance in the container shipping segment, Moody's says the situation will persist over the coming 12-18 months. Moody's projects that supply growth will outpace demand growth by more than 2% in 2016, and keep freight rates low. If bunker fuel prices increase materially, the segment's profitability will likely come under further pressure.

In relation to the tanker segment, Moody's says that supply growth will be large during 2016-2017, due to a heavier delivery schedule. As a result, Moody's views on the segment have become more subdued when compared with its stance in 2015. Moody's says this segment will see falls in freight rates and EBITDA in 2016. Freight rates nonetheless will be above medium term averages, because oil prices are still low and structural shifts related to refinery locations continue to support demand.

The report points out that Moody's will consider changing the outlook for the global shipping industry back to stable if shipping supply growth exceeds demand growth by less than 2%, or demand growth exceeds supply growth by up to 2%, and if aggregate EBITDA growth is within a range of -5% to +10% year-over-year.

Moody's will consider a positive outlook for the global shipping industry if the oversupply of vessels declines materially and the aggregate year-over-year EBITDA growth for companies that Moody's rates appears likely to exceed 10%.

Subscribers can access the report at:

http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1029721

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Mariko Semetko
Vice President - Senior Analyst
Corporate Finance Group
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 813-5408-4110
SUBSCRIBERS: 813-5408-4100

Ian Lewis
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 813-5408-4110
SUBSCRIBERS: 813-5408-4100

Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 813-5408-4110
SUBSCRIBERS: 813-5408-4100

Moody's: Global shipping industry's negative outlook due to fall in EBITDA
No Related Data.
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