Moody's lowers 2016 outlook on global shipping sector to negative

Supply growth to outpace demand growth in 2016 by more than 2%, suppressing freight rates mainly in the dry bulk, container segment, says the ratings agency

Moody's Investors Service has changed its outlook on the global shipping sector to negative as it expects supply growth to outpace demand growth in 2016 by more than 2 percent, suppressing freight rates, particularly in the dry bulk and containership segments.

However, the outlook for the tanker segment remains stable as low crude oil prices will continue to boost demand for tankers.

"Even though the tanker segment continues to perform strongly, we expect the supply-demand gap for the industry overall to exceed 2 percent in 2016, and possibly into 2017, as large new vessel deliveries coincide with subdued demand for dry bulk and container ships," Moody's said quoting Marie Fischer-Sabatie, senior vice president in its report.

China's slowdown is weighing on demand for commodities, such as coal and iron ore, which in turn affects dry bulk seaborne transportation demand.

On the back of weaker freight rates in the dry bulk and container segments, Moody's now forecasts a low single-digit percentage decline in aggregate EBITDA for the rated shipping companies in 2016, versus growth in the low single-digits in its previous forecast late last year.

While fuel prices, which make up a large cost item for container shipping companies, have continued to fall over the past six months, the benefits to the container shipping segment will fade somewhat in 2016 because they have already passed lower fuel costs on to their customers via reduced freight rates, limiting the upside.