Moody's: High Bunker Prices Could Hurt Container Shippers the Most

Moody's has held a negative outlook on the shipping industry since July 2011

The global shipping industry will remain in a weak position for the next 12 to 18 months as the supply of vessels continues to outpace demand, with the container segment most likely to be affected by high bunker prices, Moody's Investor Services (Moody's) predicts.

The firm's latest Industry Outlook confirms the negative outlook on shipping that Moody's has held since July 2011.

"Substantial oversupply will constrain freight rates for at least the next 18 months, particularly weighing on earnings in the dry-bulk and crude oil tanker segments, while falling US crude oil imports and declining European demand are likely to depress seaborne deliveries," said Marco Vetulli, vice president and senior credit officer at Moody's Corporate Finance Group.

"We expect aggregate EBITDA [Earnings Before Interest, Taxes, Depreciation, and Amortization] in the global shipping industry to decline by around 5%-10% in 2013."

However despite being the most sensitive to bunker fuel costs, which Moody's said were likely to remain high, the good news for the container segment is that it could also outperform other parts of the industry if companies maintain market discipline, lay up ships, and otherwise manage overcapacity issues in the market.

Moody's said the crude oil tanker and dry bulk sectors are facing the toughest conditions, while product tanker companies may benefit from demand growth as refining capacity shifts toward Asia and the Middle East.

Overall, the industry should see improvement in 2014 as oversupply declines, although a slowdown in the recovery of the global economy remains a downside risk.

Shipping billionaire John Fredriksen recently predicted that the crude tanker market will not recover for at least two years, although he was more hopeful about product tankers and dry bulk carriers.