Covid-19: Icra outlook on bulk, container, offshore negative in near term

Tanker freights see upside as falling oil prices come to rescue

The near-term outlook for major shipping segments like dry bulk, containers and offshore is negative as global trade will be impacted due to the Covid-19 outbreak, Icra said in its note today.

The exceptions to this trend, however, are oil tankers, where the sharp drop in oil prices has led to an increase in demand - both for supply of oil and for floating storage.

As a result, tanker rates significantly increased though their sustainability beyond the near term remains to be seen.

While the overall outlook is challenging in the near-term, the impact on shipping companies with a high share of tankers should be mitigated due to high tanker rates.

“The credit profile of Indian shipping companies is expected to remain under stress in the near-term and companies which are highly leveraged will be adversely impacted by the downturn. The implementation of the IMO-2020 norms has also led to an increase in operating costs for the sector, due to higher cost of low sulphur fuel, although the drop in crude oil prices has mitigated the impact to an extent, K Ravichandran, senior vice president and group head of Icra Ratings was quoted as saying.

“The coastal shipping segment which had witnessed healthy growth in the last few years, supported by the Government’s push to increase share of transportation of this segment, will also witness some adverse impact in the near term, mainly in the container segment, whereas the impact on the bulk segment may be limited due to largely the essential nature of those commodities, which will not be impacted by the lockdown,” he added.

Although the impact of pandemic is currently evolving, most of the major economies starting with China have implemented extended lockdowns, leading to disruption in supply chains and severe slowdown in economic activities is expected in major regions.

The charter rates for dry bulk and container segments have witnessed a steep moderation in the last two months. Further, the steep fall in crude oil prices, following OPEC’s inability to arrive at an agreement for production cuts, is expected to result in moderation in E&P activity at least over the next six months to one year, which is going to have an adverse impact on the offshore segment.

The recovery in the global shipping sector will be contingent on the recovery in global economic activity.

 “The recovery in the shipping sectors like dry bulk and containers will depend on the recovery in global economic activity, post abatement of the Covid-19 outbreak, starting from China, the timeline for which remains uncertain at present as the crisis is still at an evolving stage. Further, any major changes in global industrial supply chain, during the recovery phase will also have an impact on shipping trade routes. Additionally, a supply side correction in the form of increased scrapping, should also be beneficial for the sector in the recovery phase,” the note quoted Sai Krishna, assistant vice president at ICRA Ratings as saying.