Shipping revival unlikely before 2015: India Ratings

Ratings agency India Ratings has given a negative outlook for the shipping sector this year on low levels of international trade and excess capacity, and said the industry is unlikely to see a revival till 2015.

"Capacity overhang brought about by low levels of international trade and high fleet additions are likely to keep freight rates muted across the primary segments of dry bulk, tankers and container carriers in 2013," an India Ratings report said.

Globally, high fuel prices and the lower revenue due to a dent in getting charters will also hurt operating margins of shipping companies, it said.

Given the global nature of the business, the domestic shipping companies are unlikely to be insulated from this trend and the absence of empowering rules in the Cabotage or domestic coastal shipping opportunities, it said.

"The Cabotage regulations only provide them (domestic lines) the first right of refusal for freight routes along the coastal waters or involving freight movement for government companies," it said, and warned that this will result in multiple troubles for shippers on the financial front, like troubles with debt repayments and difficulties arranging refinance.

"Reduced profitability in 2013 is likely to hamper debt repayment ability of domestic shipping lines, particularly those that embarked on large debt-fuelled capex plan around 2007-08 when asset valuations had peaked."

The sharp depreciation in the rupee during the past 18 months will add to the woes of companies who have gone for external borrowings to fund asset acquisitions, it added.

However, the report is optimistic about companies in the offshore oil exploration and drilling segment as the high crude prices make the trade feasible.

"Charter rates in the offshore segment comprising oil rigs and support vessels remained high in 2012, supported by increased offshore exploration and drilling activity, which in turn is driven by persistently high crude prices," it said.