The global shipping slump is expected to last well into 2013 as a glut of vessels and a growing credit squeeze will challenge even the toughest companies in the seaborne sector, Moody's Investor Service said on Wednesday.
Shipping companies, especially in the oil tanker and dry bulk sectors, already hit by worsening economic turmoil, weak earnings and oversupply ordered in the good times now face tighter financing as banks cut their exposure to risky and dollar denominated assets such as ship finance to meet tougher capital rules.
"Oversupply in both sectors is quite sizeable and we think that it will take 12 to 15 months to see the light at the end of the tunnel," said Marco Vetulli, senior credit officer with Moody's, a ratings agency. Ship owners went on an ordering spree between 2007 to 2009 bolstered by earnings which saw rates in the bulk sector for larger capsize vessels, transporting iron ore and coal cargoes, reaching a peak of over $230,000 a day in 2008 and over $180,000 a day for crude oil supertankers.
Average capsize earnings reached just under $6,000 a day this week and below operating costs, while supertankers have hit just over $13,000 a day, slightly above operating costs. "Companies were able to save liquidity thanks to very good years they had. But now, especially marginal players, will start to suffer and I am expecting an increasing number of defaults especially in dry bulk among marginal players," Vetulli said. Vetulli said despite reasonable iron ore and coal demand in China, one of the main drivers of dry bulk activity in recent years, fleet growth would continue to take its toll. The Baltic Exchange's main index, which tracks rates to ship dry commodities, reached just over 780 points this week, off its peak in May 2008 of 11,793 points before financial turmoil battered the sector.