Friday 29 Mar 2024
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KUALA LUMPUR (Mar 23): The global sector outlook for shipping companies remains negative in 2018, according to Fitch Ratings.

In a statement on its website March 22, the rating agency said shipping companies are generally of low credit quality and have shown limited adherence to capacity discipline.

Furthermore, as noted in Fitch's latest "Global Economic Outlook," the recent step-up in U.S. protectionist measures could escalate into a global trade war.

Fitch said a contraction in global trade would likely result in reduced container throughput that would lower demand for container and containership leasing.

Despite these risks, it said the favorable backdrop of strong global gross domestic product growth should support the container and containership leasing markets in the near term.

Meanwhile, Fitch said two large equipment leasing subsectors whose performance is closely tied to global trade volumes --containers and containerships -- have recovered meaningfully since the 2015 downturn,

It said despite some uncertainties on the horizon, including the potentially negative effects of recently proposed U.S. tariffs, the recovery in these leasing markets is likely to persist through 2018.

“In 2017 and year to date (YTD), the container market has corrected, driven by lower inventory levels from the four major container manufacturers, leading to increases in lease rates and container prices.

“The hot-rolled coil steel index rose 4.6% in 2017 and is up 25% YTD.

“Steel prices are the main driver of container prices and could further appreciate as a result of the U.S.'s proposed tariffs of 25% on steel,” it said.

Fitch said container lessors own and manage intermodal transportation equipment such as dry and refrigerated containers.

It said the containership leasing industry is more fragmented than the container leasing industry.

“Containerships require significantly more capital investment than containers, and excess capacity pushed down containership values in 2015 and 2016, leading to substantial impairments.

“However, since the downturn, lower containership orders, coupled with higher scrapping levels, have driven up asset values and charter rates,” it said.

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