• 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 2

18:24 Consortium of Boskalis, Bouygues and Saipem selected for Fecamp Offshore Wind Farm foundations
18:07 Alfaport-Voka, Antwerp Port Authority and Maatschappij Linkerscheldeoever agree to extend payment period for concessions
17:39 About forty ships, boats and vessels of RF Navy's Black Sea Fleet went to sea for training
17:34 Stena Line is now ten years ahead of the international shipping targets for reducing emissions
17:17 Nuclear-powered container carrier Sevmorput returned to Murmansk, its port of registration
16:51 The world's second largest container ship begins operating in the Port of Barcelona
16:15 Rosmorport announced successful bidder for adjustment of Pionersky terminal project
15:36 Associations call for accelerating digitalisation of maritime trade and logistics
14:51 POT celebrates its 25th anniversary on 16 June 2020
14:28 Nakhodka Ship Repair Yard lays down a series of eight crab catching ships
14:02 Ole Martin Grimsrud to leave his position as CFO of Aker Solutions
13:53 Effects of coronavirus epidemic prevention regulations on Finnlines Passenger traffic
13:35 WMU joins On Shore Power Supply in the Nordic Region project
13:02 DCSA establishes IoT standards for container connectivity
12:48 Bunker market sees mixed price movements at the Far East ports of Russia (graph)
12:26 Qatar Petroleum signs the largest LNG shipbuilding agreements in history to secure more than 100 ships valued in excess of QR 70 billion to cater for its LNG growth plans
12:00 Diana Shipping announces direct continuation of time charter contract for m/v Phaidra with Uniper
11:47 Research vessel of RF Navy's Baltic Fleet completed round-the-world route
11:22 Financial and operating results of FESCO Transportation Group for 2019
11:03 Ocean Network Express to extend the suspension of China-Australia service
10:29 “Zigh” Ship Repair and Construction Yard completes high-quality overhaul of “Nakhchivan” ferry vessel
09:58 Oil prices rise within $1
09:40 RS specifies requirements to roadster and harbor craft
09:23 MABUX: Bunker market this morning, June 02
09:12 Baltic Dry Index on June 1

2020 June 1

18:37 KIZAD breaks ground on largest rest, refuelling facility in region
18:21 Christophe de Margerie completes eastbound transit of NSR two months earlier than usual
18:13 Tallink Grupp to reroute its vessel Isabelle to operate on the Paldiski-Kapellskär route from 7 June 2020
18:07 ZIM starts eCommerce Xpress
17:52 Tallink to provide weekly sailings to Mariehamn in June and July 2020
17:29 Tallink adds more departures and additional vessel to Tallinn-Helsinki route
17:05 CMA CGM has announced FAK rates from North Europe to Mexico East Coast, USEC and USGULF & USWC
16:48 Throughput of port Azov in 5M’2020 fell by 9% YoY
16:30 Speakers announced for webinar “River fleet of the USA and Europe. What is useful for us or how do they make profit?”
16:05 MV Barracuda makes the first switch from dry cargo to jet fuel
15:26 Oil shipments via CPC Marine Terminal in 5M’20 climbed by 8.3% YoY
15:01 CMA CGM announces FAK rates from the Mediterranean to USEC, USGULF, Mexico East Coast and Canada East Coast
14:57 CANDEN Marine Fuel Services joins Glander International Bunkering Group
14:55 Average wholesale prices for М-100 HFO rose to RUB 6,641 in RF spot market
14:33 Northern Sea Route cargo traffic in 5M’2020 rose by 2.95%
14:10 Bollinger Quick Repair takes delivery of new dry-dock – “MR. Eddie”
13:52 Shuttle tanker Mikhail Ulyanov loads 200th crude oil cargo for Prirazlomnoye project
13:10 Neptune Energy welcomes DEME as a partner in the PosHYdon offshore green hydrogen pilot
12:46 Russian Railways' network loading fell by 4.5% in 5M’ 2020
12:10 Tanger Med partners with the initiative of the largest world ports to guarantee the continuity of international supply chains
11:57 Vladimir Putin approved a list of instructions following a meeting on transport sector development
11:31 CMA CGM ends PSS for exports from East Russia
11:05 Van Oord develops Green loan framework
10:30 CMA CGM announces PSS for Reefer Exports from Europe to West Africa (Nigeria excepted)
10:03 Oil prices decrease by about $1
09:46 Royal IHC to deliver design package and key components for new TSHD of Weeks Marine
09:42 Shipbuilding and Ship Repair Yard named after Lenin launched crane ship built for RF Navy
09:20 Baltic Dry Index on May 29
08:39 MABUX: Bunker market this morning, June 1

2020 May 31

16:57 RINA: shareholders’ meeting approves the financial statement for 31 December 2019 and appoints a new Board of Directors
15:31 Board appoints non-executive director at V.Group
14:48 MM&P seeks help from Congress in battle to repatriate offshore crews
13:24 Svitzer A/S names new CEO
12:31 Subsea 7 announces cost reduction measures
10:52 Drydocks World begins second project for the Hollandse Kust Zuid Windfarm