Moody's Upgrades Global Shipping Industry Outlook to stable

Posted by Greg Trauthwein
Wednesday, April 30, 2014
Moody's Investors Service has revised for the first time since June 2011 its outlook for the global shipping industry to stable from negative.
 
"The revision reflects our expectation that the global industry's aggregate EBITDA will rise by mid-single digits in percentage terms year-over-year in 2014, in line with our -5% to 10% growth range for a  stable outlook," says Mariko Semetko, a Moody's Assistant Vice President  and Analyst. 
 
"And while overcapacity remains a concern, we believe industry conditions  are at a trough and that the supply-demand gap will not worsen  materially," says Semetko. 
 
"In this environment, we expect the supply of vessels will exceed demand  by no more than 2%, or that demand will exceed supply by up to 2%," says  Semetko. 
 
Semetko was commenting on the release of a Moody's report titled "Change  to Stable Outlook for Shipping Sector Reflects EBITDA Growth". As  indicated, the industry outlook had been negative since June 2011. 
The report further notes that cost reductions -- including the effects of  lower bunker prices, as well as the application of slower steaming speeds  and efficiency savings -- have driven the growth in EBITDA. 
 
At the same time, market conditions remain tepid, but are not  deteriorating, with freight rates for the dry-bulk segment showing some  improvement but those for the container segment remaining under pressure. 
The sector is also saving on costs through postponing and cancelling  deliveries of new vessels, scrapping the oldest and most inefficient  vessels, and idling vessels. 
 
Moody's would consider changing the outlook back to negative if it sees signs that the supply-demand gap is likely to widen such that supply  exceeds demand by more than 2%. 
 
Moody's said it could also return the outlook to negative if it see signs that  the industry's aggregate EBITDA will decline by over 5%.  Finally, we would consider a positive outlook if the amount of vessel oversupply declines materially and if the industry's aggregate EBITDA growth exceeds 10%.
 
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