Choppy waters forecast for global shipping industry over next 12-18 months

Aggregate earnings of rated shipping companies will fall by around 16% to 18% in 2020, Moody's says

Shipping containers sit stacked on the dockside at the Port of Leixoes commercial shipping port in Porto, Portugal, on Thursday, July 2, 2020. The European Union said its trade with the rest of the world would slump this year by as much as 868 billion euros ($963 billion), or more than 10%, in a gloomier updated forecast that offers fresh evidence of the global economic damage caused by the coronavirus. Photographer: Eduardo Leal/Bloomberg

The global shipping industry’s outlook for the next 12 to 18 months remains negative and unchanged since March as companies' profit forecasts fall.

Expectations that the global economy will shrink this year, followed by a “long and bumpy” road to recovery are the main cause for the negative assessment, Moody’s Investors Service said in a new report.

“We now expect the aggregate Ebitda [earnings before interest, tax, depreciation and amortisation] of rated shipping companies to fall by around 16 per cent to 18 per cent in 2020, nearly doubling from our previous projection of a drop of around 6 per cent to 10 per cent,” Maria Maslovsky, a vice president and senior analyst at Moody’s, said.

The outlook for the dry bulk and container shipping segments is negative, with supply expected to exceed demand significantly, the report said.

However, the outlook for the tanker segment is stable, helped by a temporary disruption in the oil market, with high demand for floating storage pushing up tanker rates, it said.

The downturn in economic activity triggered by the Covid-19 pandemic has amplified domestic disruptions around the world and led to a contraction in global trade. International trade flows shrunk by about 3.5 per cent year on year in the first quarter due to weak demand, the collapse of the tourism industry and supply disruptions related to shutdowns, the International Monetary Fund said last month.

The damage inflicted by the virus on the logistics and trade industry is set to last longer and be greater than any recent crisis, McKinsey said in a report titled “Global freight flows after Covid-19: What’s next?”

Unconstrained trade demand around the world could fall by between 13 per cent and 22 per cent in the second and third quarters of this year, the report showed. In contrast, the biggest quarterly decline in trade volumes during the global financial crisis of 2008 was around 5 per cent.

Trade volumes will take 15 to 48 months to recover to levels recorded in the last quarter of 2019, and the value lost will be between 8 and 49 per cent of the total trade volume registered last year, McKinsey said, citing various scenarios.

“Covid-19 will have a ... lasting impact on the economy, but trade volumes will recover,” the report said.

“The companies that will emerge with a competitive advantage will be those that develop granular scenarios on how demand will evolve, appropriate playbooks to use in each case and mechanisms that recognise ... which scenario becomes [a] reality.”