Fitch gives negative outlook to Indian shipping

Ratings agency Fitch has said that the Indian shipping industry faces a negative outlook during 2011 due to lower freight rates and global slump.

"Fitch Ratings maintains a negative outlook on the Indian shipping industry in 2011, as freight rates will remain depressed because of the demand-supply imbalance caused by a net increase in capacity exceeding demand," it said in a statement.

The ratings firm said lower freight rates have affected revenue generation across shipping companies, in line with global trends and said major players will be under pressure in 2011.

"Fitch expects revenues and operating profits of the shipping companies (GE Shipping,  Varun, Essar, SCIL, Pratibha) to be constrained in 2011, given continued low freight rates," it said.

During 2011, low freight rates are expected across all segments like dry bulkers, tankers and containers, and few Indian shipping companies are expected to undertake aggressive capex plans.

"It is unlikely that macroeconomic factors will be able to bring about a reversal in the outlook from negative to stable given the high industry overcapacity expected in the near future," Fitch said.

It added that companies with a greater proportion of their ships on long-term charters cannot expect to be completely protected against the prevailing low charter rates, as most contracts have a tenor of one year and contract rates will be reset at prevailing low rates upon renegotiation.

"As at end-2010, the global order book position for new builds as a percentage of existing capacity was around 46 per cent for dry bulk segment, around 28 per cent for tankers and around 26 per cent for container carriers," Fitch said.

These additional capacities are expected to come on stream during 2011-2013, which is likely to result in over-capacity and further low freight rates.

"Shipping being a worldwide industry, Indian shipping companies have been impacted by global trends. Revenues and Ebidta margins of the companies have been negatively affected by lower rates in 2009 and 2010," it said.

The ratings agency said the debt levels of Indian shipping companies are not likely to come down and those with constrained cash flows are likely to face some refinancing pressure.