Overcapacity Discipline Is Key to Maintaining Growth in Global Shipping

Ongoing overcapacity in the global shipping industry is among the factors keeping Fitch Ratings analysts from changing their negative outlook on the sector.

Container and bulk shipping are showing positive signals of growth, but the staying power of this trend remains cloudy “due to limited adherence to capacity discipline in the sector,” Fitch analysts said in a new report. Supply and demand dynamics are likely to support container, bulk and liquefied natural gas (LNG) shipping rates, but tanker rates could stall.

“The tanker shipping segment is the most exposed following a glut of new vessel deliveries in 2017,” Fitch said. “We expect demand for tankers to grow by around 4% in 2018, helped by rising global oil consumption, higher U.S. exports and declining oil inventories. But this would still only broadly match the expected growth in tanker supply. Rates therefore may not fall further, but a sustained increase is unlikely.”

Rates for container shipping have been raised this year, but again, overcapacity threatens continuation of the trend, which has fluctuated historically, analysts said. The ratings agency expects supply to grow by more than 5.5% in 2018, backed by stable capacity discipline and potential consolidation in the sector over the medium term.

A recent recovery in the rates for dry bulk shipping could also be transient, but Fitch believes demand will outpace the growth in vessel supply next year. “The market balance will be helped by the low level of new vessel orders for the last three years. China will remain the key driver for dry bulk commodities imports and trade, and the sector is therefore particularly sensitive to Chinese GDP growth, which we expect to be 6.4% in 2018,” Fitch said.

– Nicholas Stern, managing editor

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