Fitch Ratings has said that its outlook on the shipping industry remains negative for next year, noting subdued prospects driven by risks global economic slowdown, persisting trade tensions and geopolitical risks.
"We maintain a negative sector outlook for global shipping because of the forecast slowdown of global economic growth and a balance of risks skewed to the downside," Fitch said in its 2020 Global Shipping Outlook.
Economic slowdown, global uncertainties drags outlook
It noted that while the 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 global shipping sector is also expected to face additional pressure from the expected cost increases related to the IMO 2020 sulphur cap, set to be enforced in January 2020 which requires every vessel to adhere to strict sulphur emissions limits.
Fitch said the additional expenses from use of more expensive low-sulphur fuel, installation or purchase pf new LNG-fuelled vessels will likely impact shippers’ negatively as shippers will not likely pass on the full cost to customers considering the tight competition in the market.
Increased pressure from IMO 2020 sulphur cap
"The sector will need to cope with a cost rise related to the compliance with a new regulation capping sulphur content in marine fuel (IMO 2020) ... we expect most shipping companies to use low-sulphur fuel," it said.
For container shipping, Fitch expects global container volumes to increase slightly by around 2.5% in 2020 from this year, although noting that it is still less than the 4.5% average growth rate seen in the industry in the past eight years.
Fitch said for dry bulk, volumes are forecast to increase by 3% in 2020, also slightly higher than the 1.5pp for 2019, to be driven by a rise in iron ore volumes, among others, and dry-bulk shippers are likely to pass on to customers some of the incremental fuel costs.
The credit rater also noted that the supply and demand of global tankers will likely expand by 2.5% and 3.5% in 2020, supporting a better supply-demand balance, which Fitch said will "help freight rates to stay at levels comparable to annual averages in 2019."
It added that the impact of the IMO 2020 Sulphur Cap implementation to tankers is likely "mixed" with the rising compliance costs to be mitigated by expected increased demand for tankers to move compliant fuel.
Lingering trade and geopolitical tensions as well as other political risks, however, may squeeze long-term tanker demand.
"All shipping segments have been demonstrating more prudent capacity growth in recent years, which supports better supply/demand balance, but a longer record of capacity management is needed to strengthen the sector’s resilience," Fitch said.
