Outlook for global shipping remains negative, says Fitch Ratings

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KUALA LUMPUR (Dec 6): Fitch Ratings said its sector outlook for global shipping remains negative, as it does not expect a material improvement in market fundamentals in 2018, due to lingering overcapacity.

In a report titled Fitch 2018 Outlook: Global Shipping published on its website yesterday, Fitch said both container and bulk shipping show signs of a revival, but the longevity of this trend remains uncertain, due to limited adherence to capacity discipline in the sector.

The rating agency said improving market sentiment and a focus on scale and vessel size have stimulated new orders.

It said the supply and demand dynamics are likely to support container, bulk and LNG rates, but tanker rates could remain under pressure.

Fitch Ratings said the tanker shipping segment is the most exposed, following a glut of new vessel deliveries in 2017.

“We expect demand for tankers to grow by around 4% in 2018, helped by rising global oil consumption, higher US exports and declining oil inventories.

“But this would still only broadly match the expected growth in tanker supply. Rates therefore may not fall further, but a sustained increase is unlikely,” it said.

Fitch Ratings said container shipping freight rates have increased this year, but overcapacity makes this recovery fragile and previous rate increases have proved short-lived.

It said any improvement in market sentiment tends to stimulate new orders, and this happened again when new orders, including for mega-ships, surged in the third quarter of 2017.

“We expect supply growth to be over 5.5% in 2018, outpacing a likely over 4.5% increase in container transport volume growth.

“A sustainable recovery in rates will need continuous and consistent capacity discipline in the industry. This could be driven by consolidation in the sector over the medium term,” the ratings agency said.

Fitch Ratings said the recent recovery in dry bulk shipping rates may also prove short-lived, although unlike the other segments, it expects demand to outstrip the growth in vessel supply in 2018.

It explained that the market balance will be helped by the low level of new vessel orders for the last three years. China will remain the key driver for dry bulk commodities imports and trade, and the sector is therefore particularly sensitive to Chinese GDP growth, which it expects to be 6.4% in 2018.