The global shipping slump is expected to last well into 2013 as a glut of vessels and a growing credit squeeze will challenge even the toughest companies in the seaborne sector, Moody’s Investor Service said on Wednesday.
Shipping companies, especially in the oil tanker and dry bulk sectors, already hit by worsening economic turmoil, weak earnings and oversupply ordered in the good times now face tighter financing as banks cut their exposure to risky and dollar denominated assets such as ship finance to meet tougher capital rules.
"Oversupply in both sectors is quite sizeable and we think that it will take 12 to 15 months to see the light at the end of the tunnel," said Marco Vetulli, senior credit officer with Moody’s, a ratings agency.
"All shipping companies sooner or later will be impacted by the situation," he told Reuters.
Ship owners went on an ordering spree between 2007 and 2009 bolstered by earnings which saw rates in the bulk sector for larger capesize vessels, transporting iron ore and coal cargoes, reaching a peak of over $230,000 a day in 2008 and over $180,000 a day for crude oil supertankers (all figures US$).
Average capesize earnings reached just under $6,000 a day this week and below operating costs, while supertankers have hit just over $13,000 a day, slightly above operating costs.
"Companies were able to save liquidity thanks to very good years they had. But now, especially marginal players, will start to suffer and I am expecting an increasing number of defaults especially in dry bulk among marginal players," Vetulli said.
Despite reasonable iron ore and coal demand in China, one of the main drivers of dry bulk activity in recent years, fleet growth would continue to take its toll, he said.
The Baltic Exchange’s main index, which tracks rates to ship dry commodities, reached just over 780 points this week, off its peak in May 2008 of 11,793 points before financial turmoil battered the sector.
"I don’t see the possibility for the main index to be above 1,500 points on average (this year)," Vetulli said.
The ratings agency downgraded the shipping sector to negative from stable in July last year.
The crisis has already claimed casualties including Malaysia’s Swee Joo Bhd, which went into bankruptcy last year.
PT Berlian Laju Tanker, Indonesia’s largest oil and gas shipping group, last month defaulted on its $2 billion debt. Separately, General Maritime, which had filed for Chapter 11 bankruptcy protection in November, said in February private equity firm Oaktree Capital Management will provide it with $175 million in new capital under a restructuring plan.
Vetulli said a sector recovery was more likely to take 15 months. "It will be a painful process," he said in an interview.
Soaring fuel costs and the euro zone crisis have also added to pressures faced by ship owners.
Vetulli said ship scrapping had helped soak up some of the excess vessel availability in the dry bulk sector and the tanker market. Slow steaming, a method where ships slow their speed to cut fuel consumption, had also saved costs.
"Generally my perception is that tanker operators tend to be a little stronger from a (financial) liquidity point of view than dry bulk players but the level of problems in the market is very similar," he said.
"For products tankers the fundamentals of the industry are a bit better and in 2013 it will be the first of the sectors to emerge from the crisis."
For crude tanker operators, sanctions imposed by the West over Iran’s disputed nuclear programme would also hurt as the Islamic Republic faces growing hurdles to sell its oil.
"Maybe some players will be able to make money out of it. But in general it will be negative for the industry," Vetulli said.
Danish shipping company Torm said last week its banks had agreed to extend until March 15 a suspension of repayments on its $1.87 billion of debt to allow more time for talks aimed at finding a way out of its funding crisis.