• 2018 July 30 15:28

    Container-shipping firms focus on asset optimisation amid high fuel prices, trade disruption, says Scope Ratings

    Asset quality, size and diversification will determine the success of shipping companies in the next 18 months as higher costs, tighter environmental rules and worsening global trade relations risk offsetting buoyant demand and capacity reductions.

    Only container-shipping companies with the biggest fleets and most efficient vessels are likely to turn a profit this year and meet longer-term challenges, says Scope Ratings in a short report out today.

    Container shipping is a capital-intensive business. A.P. Møller-Mærsk, the industry leader, spends around USD 1bn a year on new ships. When owners have little control over cargo rates, and differentiating one freight service from another is difficult, industry returns depend on asset optimisation – ensuring ships are always at sea and fully loaded.

    One problem ship owners face is the oil price. Scope expects a rise of around 25% in bunker prices this year compared with 2017, squeezing thin profit margins despite robust global economic growth and buoyant trade, notably in Asia.

    “Strong demand is creating a better-than-expected supply-demand balance but another headwind is the industry’s excess capacity, which weighs on freight rates,” says Denis Kuhn, analyst at Scope and author of the report.

    Shipping consultants Drewry recently upgraded its container demand forecast by two percentage points to 6.5% from 4.5% for 2018. Scope had forecast a favourable demand outlook in its 2018 shipping outlook in January.

    While those supply-demand-fundamentals remain intact, this has not yet translated into visibly higher shipping rates, as supply has also been slightly higher than anticipated; mostly due to less capacity taken out of the industry via scrapping.

    “Scrapping should accelerate in H2 and 2019, easing the capacity glut,” says Kuhn. There are a number of factors that support this acceleration in scrapping, including new environmental regulations, capping sulphur emissions from 2020 and toughening up requirements for treating ballast water. Those are powerful incentives for owners to invest in new ships and scrap older ones while keeping up pressure for more sector consolidation.

    Increased crude oil and bunker prices and flat shipping rates will continue to put severe pressure on the operating profitability of older, less efficient vessels.

    For this reason, fleet efficiency and quality will become even more important over the next few quarters for container companies to be able to generate operating profits and maintain their credit-risk profiles. Shrinking operating results will drive up leverage (typically measured by Net Debt/EBITDA) and may result in increased borrowing costs for shipping companies.

    Credit spreads on many shipping bonds have widened recently amid weaker-than-expected freight rates but could tighten again if liners can mitigate the effect of higher bunker costs via rates increases as well as improved efficiency.

    Another topic worrying shipping investors recently has been the growing trade disputes. Longer term, potential disruption to global demand between the world’s major economies may hit global trade volumes. But Scope is fairly sanguine about this. “The net effect for shipping firms from further deterioration in relations between the US and its major trading partners – China and the EU included – could be less dramatic than it first looks,” says Kuhn.

    Shipping volumes are determined by consumer demand and suppliers’ strategies for meeting it. If consumers substitute imports from countries with increased tariffs for cheaper ones from other countries, the impact on overall trade volumes might be modest but will favour operators of large, diverse fleets able to adjust routes quickly to changing trade patterns. Being part of a strong alliance like M2, THE ALLIANCE or OCEAN is essential, in Scope’s view, to meet shifting customer demands in a flexible and reliable way.

    About Scope Ratings GmbH
    Scope Ratings GmbH is part of the Scope Group with headquarters in Berlin and offices in Frankfurt, London, Madrid, Milan, Oslo and Paris. As the leading European credit rating agency, the company specialises in the analysis and ratings of financial institutions, corporates, structured finance, project finance and public finance. Scope Ratings offers a credit risk analysis that is opinion-driven, forward-looking and non-mechanistic, an approach which adds to a greater diversity of opinions for institutional investors. Scope Ratings is a credit rating agency registered in accordance with the EU rating regulation and operating in the European Union with ECAI status.


2019 August 24

15:44 Vattenfall inaugurates Scandinavia’s largest offshore wind farm
14:42 Eastern Shipbuilding delivers the CAPT. JIM McALLISTER with a USCG Sub-M COI to McAllister Towing
13:26 Gulf of Mexico Lease Sale yields more than $159m in high bids, continues Upward Trend Under Trump Administration USDoI
11:38 Grieg Star takes delivery Supramax vessel the Star Damon
10:58 DNV GL launches renewables certification operations in U.S.

2019 August 23

18:36 Bridge parts transported for second Theemsweg route bridge
18:06 CMA CGM announces GRR from Asia to East and South Africa, Indian Ocean
17:55 Onezhsky Shipyard launches TSHD Yury Maslyukov
17:36 First CLEANBU wet-dry cargo switch with significant positive environmental impact
17:20 Atomflot and Baltiysky Zavod sign agreement on construction of fourth and fifth nuclear-powered icebreakers of Project 22220
17:05 CMA CGM announces FAK rates from Asia to the Middle East Gulf
16:45 MPI Resolution started blade repair campaign in offshore wind farm
16:35 PIL’s fleet attains Environmental Ship Index (ESI) certification
16:05 Botlek becomes Vopak's styrene hub
15:44 First-of-a-kind floating nuclear power unit Akademik Lomonosov leaves Murmansk for Pevek
15:23 CMA CGM will not use the Northern Sea Route
15:17 Vessel powered by ABB Azipod® propulsion reaches North Pole for the first time in history
15:13 NOVATEK’s Board recommends 1H 2019 dividend
14:47 PGNiG Group posts more than PLN 22.6bn in revenue for H1 2019
14:16 BC Ferries supports whale research at Galiano Island
13:52 Marsden Point, New Zealand tops BIMCO Terminal Vetting Report
13:29 Missile cruiser Marshal Ustinov entered Mediterranean Sea
13:08 Boskalis half year result 2019 tainted by offshore projects
12:34 Sevastopol Sea Port to be subsidized with RUB 54 million by municipal government
12:08 Bibby HydroMap commences second UXO survey for Vattenfall
11:40 Tests of unique replenishment system of Akademik Pashin tanker successfully completed
11:08 DP World Liège Container Terminal boosts eco-efficiency with Konecranes
10:55 Eesti Energia to use Klaipėda LNG terminal services
10:26 Hamburg, Germany to host 15th Arctic Shipping Summit on 4-5 December 2019
10:07 Bridge parts transported for second Theemsweg route bridge
09:53 Brent Crude futures price is up 0.1% to $55.98, Light Sweet Crude – up 0.01% to $55.35
09:34 Bunker market sees mixed price movements at the port of Saint-Petersburg, Russia (graph)
09:19 Baltic Dry Index is up to 2,118 points
09:07 Damen wins UX Design Award for Human Machine Interface for Tugs
08:35 MABUX: Bunker Market this morning August, 23
08:07 World’s largest all-electric ferry completes its maiden trip

2019 August 22

18:04 Australian Maritime College and KONGSBERG eye potential for VR training with renewed support program
17:39 Nordic Engineering sponsors roundtable meeting “Import Substitution in Russian Shipbuilding: Ambition and Reality”
17:04 DOF Subsea issues Financial Report for 2nd quarter of 2019
16:47 Karelia proposed construction of deep-water freight and passenger port Kem’
16:25 Bunker prices go down at the Far East ports of Russia (graph)
16:04 Navios Acquisition reports results for H1 2019
15:53 PJSC TransContainer reports its Financial Results under IFRS for 6M'2019
15:12 ReCAAP ISC has released Guidance on Abduction of Crew in the Sulu-Celebes Seas and Waters off Eastern Sabah
15:04 Essar Ports expects to meet 60 MT target for FY20
14:31 Höegh LNG announces interim results for the quarter and half year ended 30 June 2019
14:14 Peel Ports takes important step towards being Brexit ready
13:56 Yamal LNG shipped twenty million tons
13:35 Arctic block of Far East Investment and Export Agency headed by Dmitry Fishkin
13:13 Sea Machines successfully deploys industry’s first autonomous spill-response vessel
12:28 Fire onboard MV Pyotr Tchaikovsky kills one in Saint-Petersburg
12:13 Frontera Offshore and DOF Subsea join forces for the Subsea Construction and IMR Mexican market
11:31 Kalmar to enhance STS crane capabilities at EUROGATE Tanger
11:21 HELCOM publishes report on noise sensitivity of animals in the Baltic Sea
10:59 HELCOM gets a new Executive Secretary
10:35 Caterpillar Eurasia and Admiral Makarov University agreed on establishing a brand new up-to-date training center
10:10 Steps towards new treaty to protect marine biodiversity
09:38 Brent Crude futures price is down 0.41% to $60.04, Light Sweet Crude – down 0.38% to $55.47
09:20 Hapag-Lloyd announces changes of North Europe Mediterranean Express Service
09:13 Baltic Dry Index is up to 2,061 points