India: Negative Outlook on Shipping Sector

 

The agency expects the performance of dry bulk and container operators to continue to be affected by weak global trade growth and persistent overcapacity, while the offshore segment will face the negative impact of lower crude oil prices.

 

The agency, however, believes that the tanker segment, which accounts for a majority of the Indian fleet will remain an exception due to its better demand-supply situation.

 

"Global tanker demand has increased since 3Q FY15 on the back of a sharp drop in crude oil prices, leading to floating storage and onshore stockpiling. The demand was supplemented by an increase in long haul trade as Asian buyers procured crude oil from places other than the Middle East," it said.

 

Negative Outlook for Offshore Segment: Exploration and production companies globally have suspended or curtailed expansion plans due to lower crude oil prices, which has impacted the demand for vessels in the offshore segment, leading to lower day rates and utilisation levels globally. 

 

The operating performance of companies in the segment is thus likely to weaken in FY16. Companies servicing state-owned enterprises will also be affected in FY16 even though state-owned oil companies are likely to continue offshore activities albeit at a lower intensity. This is because charter rates with shipping companies will be renegotiated at lower levels. 

 

Negative Outlook for Dry Bulk Segment: The oversupply in the dry bulk segment along with weaker demand conditions particularly in China kept freight rates low throughout FY15. 

 

The agency expects the segment to be under pressure again in FY16 as overcapacity will persist and demand growth will remain subdued. 

 

Negative Outlook for Container Segment: Continued increase in global container capacity (FY15: 6.2%; FY14: 5.6%) coupled with subdued demand conditions have led to a decline in container freight rates across most routes since the start of 2015. 

 

The agency expects freight rates to stay under pressure for the rest of FY16 as global capacity growth will continue to outstrip demand growth. As a result, the operating margins of container operators will decline in FY16.