• 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 May 24

18:07 Port of Antwerp 1st port of call for reefer service from Peru, Chile, Colombia, Ecuador and Panama
17:49 Hannu Ylärinne appointed COO and Executive Vice President of Arctia Group having retained his position as CEO of Meritaito
17:28 Coast Guard issues waterway restrictions on Mississippi, Illinois Rivers
17:11 NOVATEK obtains new licenses on Krasnoyarsk Territory
17:02 CMA CGM launches the Reefer Pharma division for the temperature-controlled transportation of pharmaceutical products
16:50 Throughput of Rostov-on-Don port in 4M’19 fell by 7% Y-o-Y to 5.11 million tonnes
16:28 Teekay Tankers reports 1Q 2019 results
16:17 Acta Marine names its third W2Work offshore vessel Acta Centaurus
15:53 Ambal ferry returns to Baltijsk-Ust-Luga line after scheduled maintenance
15:27 Surveillance camera installed by Freeport of Riga Authority on Krievu Island for coal dust monitoring
14:59 Port of Tallinn got acknowledged as socially responsible company
14:01 Port Houston volume up nine percent year-over-year
13:50 Feodor Shishlakov appointed head of Volgo-Baltic Administration
13:22 PSA, PFR and IFM investors jointly acquire DCT Gdańsk
12:18 ASI Marine develops an alternative safe method for surveying in hazardous high flow areas.
12:00 Lotos shipyard launches Peotr Veliky, cruise ship of Project PV300VD
11:37 New tugboat built by Damen to expand port fleet of Nakhodka TSP
11:16 SeaBird announces update on vessel acquistion and contemplated private placement of new shares
11:06 Jotun creates new standard for predictable, long-term antifouling protection with SeaForce and HydractiveTM technology
11:01 Global Ship Lease announces agreement to acquire three containerships
10:45 Russian ship owners got 29 new seagoing commercial ships with total deadweight of 552,400 tonnes in 2018 - CNIIMF
10:24 Brent Crude futures price is up 1.22% to $68.59, Light Sweet Crude – up 1.23% to $58.62
10:11 NORDEN boosts Middle East activities with new 3-year contract
10:09 Royal IHC names 2,300m³ TSHD LESSE
09:58 Rotterdam sends hyper-smart container on trip around the world
09:47 Bunker prices go down at the port of Saint-Petersburg, Russia (graph)
09:26 ZIM announces changes to MGX Service
09:16 MABUX: Bunker market this morning, May 23
09:15 Baltic Dry Index is up to 1,068 points
08:50 Bunker prices review at global sea ports, Week 21st, 2019

2019 May 23

18:43 DOF Subsea secures contract in Brazil
18:21 ZIM Q1 2019 revenues rose 6.0% to $796.2M
18:06 MOL to Join Consortium on TCFD (Task Force on Climate-related Financial Disclosures)
17:44 CNIIMF forecasts NSR cargo traffic to reach 100 million tonnes by 2035
17:11 USCG closes case of downed aircraft in Prince William Sound
17:06 Port of Rotterdam sees significant progress in development HES Hartel Tank Terminal
16:55 GOGL announced net loss of $ 7.5M vs net income of $ 23.6M in 1Q 2019
16:30 New digital solution from Rolls-Royce and ZF improves availability and CO2 emissions of ships
16:05 CMA CGM orders 50,000 Traxens trackers
15:23 OCTOMAR Serviços Marítimos takes delivery of Damen Fast Crew Supplier 2206
14:47 RF Navy’s destroyer participated in combat training in the Sea of Japan
13:36 High Representative/Vice-President Federica Mogherini visits ITS Carlo Margottini
13:05 Singapore to host Port Maintenance and Facilities Management Summit on 24-27 September 2019
12:29 Optimarin gears up for retrofit wave with expansion and new hires
12:19 FESCO and Russian Railways launch transit service for delivery of goods from Japan to Europe through Russia
11:43 Bunker prices go up at the Far East ports of Russia (graph)
11:21 Severnaya Verf starts cutting metal for third processing trawler of Project 170701 ordered by NOREBO Group
11:08 Diana Shipping announces time charter contract for m/v Baltimore with Koch
10:26 Brent Crude futures price is down 0.69% to $70.5, Light Sweet Crude – down 0.6% to $61.05
10:08 Port of Antwerp aims for more efficient road transport with night-time opening hours on Right bank of Scheldt
09:57 Kuibyshev reservoir level allows for fleet operation - RF Transport Ministry
09:39 NOVATEK signed MoU with Ninh Thuan Province in Vietnam
09:20 Baltic Dry Index is up to 1,059 points
09:10 MABUX: Bunker market this morning, May 23
09:08 Royal IHC signs contract with Cameroon’s Port Authority of Douala
08:25 Sempra LNG and Aramco Services Company sign heads of agreement for Port Arthur LNG

2019 May 22

18:05 CMA CGM to resume the Bijagos Shuttle service
17:50 RF Government approves rules for collecting port investment dues from ship owners in Russian seaports
17:38 The University of Calabria and Finсantieri ink training agreement
17:05 CMA CGM PAD-Service delivers first Zespri kiwifruits to the port of Zeebrugge