KUALA LUMPUR (Oct 8): The global shipping industry is expected to see moderate growth in earnings before interest, taxes, depreciation and amortisation (Ebitda) for the next 12-18 months from reduced costs and stable fuel prices, even as shipping capacity continues to outstrip demand, said Moody's Investors Service.

Moody's, which changed the outlook for the global shipping industry from negative to stable in April 2014, reiterated in a press release today that the industry’s outlook remains stable.

"We expect mid-to-high single-digit percentage aggregate year-on-year (y-o-y) Ebitda growth for Moody's rated shipping companies over the coming 12-18 months, but this growth reflects reduced costs rather than improved fundamentals," said Moody's assistant vice president Mariko Semetko.

The rating agency said “slow global economic growth and continued deliveries of new vessels has led to a capacity glut, which limits companies' ability to raise rates they charge for shipping freight, constraining revenue and Ebitda growth”, which is why it expects growth to come through cost-cutting measures, while fuel costs is expected to remain largely stable.

The cost-cutting measures include optimising cargo routes through technological means, refueling at ports with relatively cheap prices, operating vessels at reduced power to reduce fuel costs, as well as increasing the usage of newer and more efficient vessels.

Meanwhile, bunker fuel costs should remain around US$600 per metric tonne (mt) during the outlook period, said Moody’s.

Bunker fuel prices have averaged around US$600 per mt over the past year and dipped to about US$570 per mt in late September, down from a peak of nearly US$740 per mt in 2012.

Freight rates, however, will vary by sector, with container, dry bulk and crude oil tanker segments seeing continued low freight rates, while product tanker rates could improve modestly as supply is tighter over the next 12 to 18 months, Moody's noted.

It also expects that product tanker deliveries will increase beyond its outlook period, which will make sustained rate increases difficult.

Moody's said it would change the outlook back to negative if there are signs that shipping supply growth will exceed demand growth by more than 2% or that aggregate Ebitda will decline by more than 5% y-o-y.

“We would consider a positive outlook if the oversupply of vessels declines materially and aggregate y-o-y Ebitda growth appears likely to exceed 10%,” said Semetko.