• 2020 April 8 12:42

    Shipping credit outlook revised to negative: cash crunch worsens as Covid-19 disrupts trade

    The credit outlook for container shipping companies has worsened as they grapple with today’s difficult operating conditions brought on by the Covid-19 pandemic, a global recession this year and likely subdued longer-term growth, Scope Ratings said Tuesday in a media release.

    Scope Ratings has revised its outlook for the sector to negative, from stable in its early-February outlook, when the impact of the coronavirus outbreak was confined largely to China and other parts of Asia.

    The global spread of the disease, further disruptions to international supply chains, and multi-country lockdowns over the past two months have drastically reduced demand for shipping. Volumes of containers shipped to and from Chinese ports fell steeply in the first quarter at the same time as the number of missed port calls rose sharply, indicating a lack of volume for scheduled port calls, according to analysis by the United Nations Conference on Trade and Development.

    “Repairing the damage inflicted on the world’s logistics system will take time: a return to medium- and long-term trends in shipping and trade is unlikely before late Q3,” says Denis Kuhn, analyst at Scope.

    “Longer term, the outlook remains gloomy considering the longer-lasting economic damage inflicted by the health crisis on government and corporate balance sheets and the strong correlation between global GDP and transportation-sector growth,” says Kuhn. (See Scope’s updated outlook on the airlines sector)

    Scope expects the global economy to contract by around 0.5% this year, a deeper recession than the trough during the global financial crisis, when global output contracted by 0.1% in 2009 (see Scope’s Q2 2020 Sovereign Update). None of the world’s largest economies will escape the pandemic’s macro-economic and financial-sector impact. Scope forecasts an economic contraction of around 6.5% in the euro area in 2020, with growth in China of only 4%, a 3.5% decline in the United States and a 4% contraction in Japan.

    “The slump in trade volumes translates into idle ships: multi-million euro assets incurring hefty costs but generating much less income,” says Kuhn.

    “Some cash outflows are discretionary such as certain capital expenditure, dividends and share buybacks, but corporate overheads, as well as financing and fixed operating costs continue to drain liquidity, all of which are a particular problem for smaller players,” says Kuhn.

    So-called blank sailings, in which ships sail without cargo in order to re-assign capacity from one route to another, are exacerbating operating losses and are more likely to be necessary for operators outside of the world’s three leading shipping alliances1. Even the 2M alliance partners MSC and Maersk are cancelling an unprecedented 21% of Asia-Europe capacity in Q2; other alliances and single carriers are expected to follow.

    The shipping sector is facing a liquidity squeeze, prompting the European Community Shipowners’ Associations (ECSA) on 2 April to call for a “targeted rescue and recovery plan” for Europe’s maritime sector. One example of the measures already underway is the international maritime authorities’ relaxation of controls for IMO 2020 clean-fuel regulations to ease near-term cash outflows for operators by allowing them to postpone use of more expensive cleaner fuels or fitting cleaning technologies like scrubbers.

    Uncertainties surrounding the scale, scope and effectiveness of government and regulatory interventions to support the industry make it difficult to judge the degree to which individual companies are at risk of going out of business. “However, since access to financing is crucial, the operators with a large diversified asset base have substantial advantages,” says Kuhn.

    One silver lining for the sector is the prospect of more consolidation. “One of the biggest drags on the sectors’ operating profitability has been persistent overcapacity. This crisis may further accelerate the clearing out of excess capacity as weaker players are forced out of business with an even larger proportion of trade volume shared among the container alliances,” Kuhn says.

    Kuhn also cautions against over-pessimism given the essential role the shipping sector has in keeping the global economy functioning as the main transporter of goods. “Production will ramp up again globally, though we do not expect volumes to climb to pre-crisis levels fast,” says Kuhn.

    12M (Denmark’s Maersk Line and Swiss-based Mediterranean Shipping Co); Ocean Alliance (China’s COSCO and OOCL, France’s CMA CGM, Taiwan’s Evergreen); THE Alliance (Germany’s Hapag-Lloyd, Japan’s Ocean Network Express, Taiwan’s Yang Ming)

    About Scope Ratings GmbH
    Scope Ratings GmbH is part of the Scope Group with headquarters in Berlin and offices in Frankfurt, London, Madrid, Milan, Oslo and Paris. As the leading European credit rating agency, the company specialises in the analysis and ratings of financial institutions, corporates, structured finance, project finance and public finance. Scope Ratings offers a credit risk analysis that is opinion-driven, forward-looking and non-mechanistic, an approach which adds to a greater diversity of opinions for institutional investors. Scope Ratings is a credit rating agency registered in accordance with the EU rating regulation and operating in the European Union with ECAI status.

2020 June 6

15:31 USCG, President Eisenhower rescue mariner 500 miles offshore
14:08 First contract for subsea innovation from Kongsberg
12:37 Eidesvik secures extention of time charter for PSV Viking Lady
11:47 Wärtsilä’s Data-Driven Dynamic Maintenance Planning solution optimises engine maintenance
10:52 CMA CGM announces first quarter 2020 results

2020 June 5

18:21 Mezhregiontruboprovodstroy appointed as sole contractor for construction of Utrenny terminal
18:05 CMA CGM announces FAK rates from Europe to Indian Ocean Islands
17:35 Teesport welcomes largest containership
17:05 EUROGATE Intermodal appoints Christopher Beplat as a new managing director
16:50 Russian Railways: Loading of export cargo bound for domestic ports up 6.4% in May 2020
16:35 DNV GL performs over twenty remote wind turbine inspections globally in times of COVID-19 related-travel restrictions
16:05 Gasum performs first LNG bunkering to Heerema’s Sleipnir
15:28 Acquisition and recapitalisation of Royal IHC finalised
14:18 First of two Austal's 118 metre trimarans for Fred. Olsen completes sea trials in Australia
13:56 Rosmorrechflot announces new competition for construction of Bagayevsky hydrosystem
13:29 Zvezda Shipyard stars cutting steel for yet another Aframax tanker
13:01 Keppel enters into framework deed with Borr Drilling to defer scheduled delivery of rigs
12:01 Port of Rotterdam Authority decides to hold RFT for transport service along Container Exchange Route
11:47 Yevgeny Ditrikh takes helm of STLC Board of Directors
11:04 The second largest container vessels in the world, now has its “Socarrat”
10:41 Oil prices rise within $1
10:28 Marseille Maersk sets up new record for the port of Rotterdam
10:23 Training exercise held with rescuers of RF Navy’s Northern fleet to assist emergency ship in the Arctic
10:00 RF Navy's oceanographic research vessel Admiral Vladimirsky entered the North Sea
09:39 Bunker prices rise at the port of Saint-Petersburg, Russia
09:18 Baltic Dry Index on June 4
08:46 MABUX: Bunker market this morning, June 05

2020 June 4

18:20 Wärtsilä to supply Europe's most modern simulator for inland shipping training
18:02 Dutch innovative app trains 10,000 process industry workers in Singapore during Covid-19 lockdown
17:47 Singapore Maritime and Ports Authority issues guidelines for crew change
17:25 Gasum performs first LNG bunkering to Heerema’s Sleipnir
17:02 China Merchants Group's emergency working group of the prevention and control of COVID-19 holds 20th meeting
16:34 Throughput of port Vysotsk in 5M’2020 fell by 24.2% Y-o-Y
16:02 Diana Shipping announces time charter contract for m/v G. P. Zafirakis with Koch
15:41 NS Power's crew rescues two people in the Andaman Sea
15:23 RS Rules update: hybrid propulsion
15:02 Grimaldi boosts its Italy-Greece connections
14:32 DNV GL and ABB launch new MOU to advance marine digitalization with a remote signing ceremony
14:02 150 trapped eels rescued at the Port of Gothenburg
13:48 Bunker price are stable at the Far East ports of Russia (graph)
13:31 MSC Mediterranean Shipping Company extends the seasonal blanking programme on its Asia–Europe network
13:01 Wärtsilä offers new remote service to overcome Covid-19 travel restrictions
12:31 DEME to build the Scheldt tunnel
12:03 Havyard presents new design concept for zero-emission sightseeing vessels
11:45 Annual throughput of Murmansk Transport Hub to be raised to 100 million tonnes
11:23 Construction of automated gate complex commences at APM Terminals Aarhus
11:10 Port of Zeebrugge joins the International Port Community Systems Association
10:58 Jiangnan Shipyard and Gabadi teams complete construction of the first LNG tank as part of an LNG-fuelled container ship project
10:57 AS Tallink Grupp Statistics for May 2020
10:33 More departures added for Helsinki-Tallinn route vessel Star from 4 June 2020
10:11 Oil prices go down by 1.48%-2.06%
10:00 CMA CGM cancels Low Sulphur Surcharge from July 1st, 2020
09:52 Russia’s leading shipping companies suggest development of ATB services by the USA example
09:40 PIER71 launches Smart Port Challenge 2020 with New Venture Capital Partners for maritime tech start-ups investments
09:36 MABUX: Bunker market this morning, June 04
09:14 Baltic Dry Index on June 3

2020 June 3

18:25 Russia's Main Department of State Expertise approves construction of operational water area under Obskiy LNG project
18:03 Cargotec’s Kalmar and MacGregor to help drive development of connected automated waterborne transport through participation in AEGIS project
17:46 Rosmorport announced tender to reconstruct coastal facilities of Vanino-Kholmsk ferry service
17:24 RF Government approved allocation of RUB 60.5 billion for Russian Railways’ BAM and Transsib projects in 2020