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Global shipping outlook negative – Fitch Ratings


The global shipping industry looks dim, mainly because of the global economic downturn, US-China trade tensions and the onset of new maritime regulations in 2020.

International ratings agency Fitch Ratings presented a negative outlook on the global shipping industry, brought by demand risks and the rising cost due to the implementation of the International Maritime Organization’s (IMO) 2020 sulphur cap.

Free global trade is vital for shipping, as about 80 percent of world trade in goods, is carried by the international shipping industry.


“Slowing global economic growth, trade tensions and geopolitical risks will lead to subdued demand growth in global shipping in 2020,” Fitch Ratings said in its new report.

Fitch offered a negative outlook in spite of its prudent capacity growth in recent years, which supported a better supply-demand balance, but a longer record of responsive capacity management is needed to improve the sector’s resilience

The main sector risk is that protectionist measures may escalate into a protracted trade war and damage the prospects for global trade and gross domestic product (GDP) growth.

“While upside is possible if the trade tensions between the US and China ease, the downside risks, including expected slower GDP growth in China, soft trade growth and Brexit uncertainty, continue to weigh on demand. The sector will also need to cope with a cost hike related to the compliance with a new regulation capping sulphur content in marine fuel,” Fitch said.

Mitsui OSK Lines (MOL) said that one issue that will have a notable impact on the industry is the enforcement of new sulfur oxide (SOx) emissions regulations in January 2020.

“It is no exaggeration to say that the enforcement of these regulations will mark a major turning point that will have a crucial bearing on the success of the MOL Group as well as the marine transport industry as a whole,” MOL President and CEO Junichiro Ikeda earlier said.

Fitch said the shipping industry needs to cope with the rising costs related to the new IMO regulation (IMO 2020), which is likely to negatively affect shippers’ credit metrics. This regulation could lead to an increase in operating cost if shippers choose to use more expensive low-sulphur fuel or capital expenditures install scrubbers that remove sulphur from the exhaust or purchase new LNG-fuelled vessels.

“Shippers are unlikely to fully pass through all the associated costs to customers due to their limited bargaining power in the oversupplied market. We expect most shipping companies to use low-sulphur fuel,” Fitch said.

Global container volumes were forecasted to grow by about 2.5 percent in 2020, a small increase from 2019 and well below the average growth rate of about 4.5 percent over the past eight years.

“Trade restrictions, if they remain unresolved, were likely to have a negative impact on global container volumes of about 1 percent in 2020,” AP Moller-Maersk said.

Fitch has expected a better capacity management in global container shipping with fleet capacity increasing by 3.3 percent in 2020, slower than 3.6 percent in 2019. Container freight rates in 2020 were likely to remain at levels similar to those in 2019.

Dry-bulk trading volumes were seen to grow by 3 percent in 2020, up by more than 1.5 percentage point (pp) 2019. Higher iron ore and other commodities volumes would drive this improvement.

Fitch said iron ore volumes were expected to slowly recover following the Vale dam incident in Brazil and challenging weather at Australian ports in 2019. Fleet additions were likely to match this growth in volumes and freight rates were likely to increase, as dry-bulk shippers would be better positioned to pass on some of the higher fuel costs.

Global tankers’ supply and demand were likely to grow by 2.5 percent and 3.5 percent, respectively, in 2020, supporting a better supply-demand balance. This would help freight rates to stay at levels comparable to annual averages in 2019, which represents a recovery from their troughs in the middle of 2018.

“The impact of IMO 2020 on tanker shipping companies was likely to be mixed, as rising compliance costs may be mitigated by increased tanker demand to transport compliant fuel. However, lingering trade and geopolitical tensions and political risk may depress long-term tanker demand,” Fitch said.


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