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Standard & Poor's shipping study sees little to cheer about in 2016

GLOBAL shipping companies, drybulk and containership operators will face weak demand and oversupply in 2016, according to a Standard & Poor's Rating Service study.

"Slower economic growth in China and other developing countries, which import a large share of commodities, will restrain ship utilisation and prevent a recovery in charter rates," said the S&P team of analysts.

But plummeting oil prices - half of what they were six months ago - have reduced operating costs, the team said, pointing out that fuel is the biggest cost item for container carriers.

"Despite already low ratings on many of the 16 shipping companies that we rate globally - the vast majority range between the BB and B categories - we expect rating activity will continue to be weighted towards downgrades this year," they said.

This would follow a number of negative rating actions already taken across the shipping portfolio in recent months reflecting the impact of a very weak industry.

"Further rating downside could stem from weaker-than-forecast cargo volumes, owing to a sharper slowdown in Chinese economic growth than expected, a sudden rebound in oil prices, an inability to renew existing charters at profitable rates due to a protracted industry downturn, aggressive debt-funded ordering, and last but not least eroding liquidity," they said.

"We don't anticipate any year-on-year rebound in average charter rates in 2016 because we don't see any immediate demand-side stimulus or supply-side relief. Any impact from accelerated scrapping of older ships will likely be wiped out by new vessel deliveries," they said.

The container shipping lines' efforts to sustain periodic general freight rate increases are generally failing in an environment of low bunker prices and rapid deliveries of ultra-large containerships, which we expect will deepen persistent oversupply problems.

Cost pressures have eased sustainably following the drop in bunker prices - bunker fuel is a container liner's major cost item.

An industry-wide effort to cut operating costs should help to better withstand the clear headwinds the industry will face in the next 12 months, they said.

"Ship operators depend on expanding Chinese consumption, which underperformed on these expectations last year and put trade volumes under strain.

"Brazil and Russia are in recession, while activity levels in the US, the eurozone, India, and Japan are all picking up somewhat, although a huge amount of uncertainty remains," said the S&P study.