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Choppy waters forecast for global shipping industry over next 12-18 months

The global shipping industry’s outlook for the next 12 to 18 months remains negative, unchanged since March, as companies’ earnings forecasts fall, Moody’s Investors Service said in a new report.

Expectations that the global economy will shrink in 2020 and a “long and bumpy” road to recovery are the key drivers for the negative outlook, the credit ratings agency said in a report.

“We now expect the aggregate EBITDA (earnings before interest, tax, depreciation and amortisation) of rated shipping companies to fall by around 16 per cent to 18 per cent in 2020, nearly doubling from our previous projection of a drop of around 6 per cent to 10 per cent,” Maria Maslovsky, vice president and senior analyst at Moody’s, said.

The outlook for the dry bulk and container shipping segments remains negative with supply likely to exceed demand significantly, according to the report.

However, the outlook for the tanker segment is stable, helped by a temporary dislocation in the oil market with high demand for floating storage pushing up tanker rates, it said.

The downturn in economic activity triggered by the Covid-19 pandemic has amplified domestic disruptions around the world and led to a contraction in global trade. International flows of trade shrank by about 3.5 per cent year-on-year in the first quarter due to weaker demand, the collapse of the tourism industry and supply disruptions related to shutdowns, the International Monetary Fund said in June.

The Covid-19 pandemic will likely hit the global logistics and trade industry deeper and for longer than any other recent crises, McKinsey said in a report titled “Global freight flows after Covid-19: What’s next?”

Global unconstrained trade demand could drop as much as 13 to 22 per cent in the second and third quarters of 2020, the report showed. By contrast, the biggest quarterly decline in trade volumes during the global financial crisis of 2008 was around 5 per cent.

Trade volumes will take 15 to 48 months to recover to fourth-quarter 2019 levels, and the value lost will be equivalent to 8 to 49 per cent of total 2019 trade volume, McKinsey said, citing various scenarios.

“Covid-19 will have a significant and lasting impact on the economy, but trade volumes will recover,” the report said.

“The companies that will emerge with a competitive advantage in the next normal will be those that develop granular scenarios on how demand will evolve, appropriate playbooks to use in each case, and mechanisms that recognise … which scenario becomes reality.”
Source: The National

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