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December 11, 2007 |
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* Moody's Says Strong Demand Supports Ratings for Asian Shipping Moody's Investors Service says that continued strong demand is helping support a stable outlook for shipping companies in Asia Pacific (excluding Japan), although the sector faces challenges in the form of volatile freight rates, rapid expansion and rising operating costs. The report's authors, Moody's Vice President/Senior Credit Officer Peter Choy and Vice President/Senior Analyst Elizabeth Allen, note that excess capacity has continued to contribute to freight rate volatility, holding down rates for both liners and tankers. "Over the next 12 months, the ability to manage revenue uncertainty over freight rates, which have been volatile over the last several years, will remain a key credit issue," says Mr. Choy. "Also, while market conditions differ for liners, oil and gas transporters, and bulk shippers, rising operating costs, including higher fuel prices, port charges and charter hire payments, have the potential to pressure margins across the shipping sector as a whole," he says. Meanwhile, oil and gas transporters like Malaysia's MISC Berhad and Singapore's BW Group have increased their petroleum and offshore tonnage in response to a forecasted increase in demand. However, while shipping requirements for oil and gas are expected to remain strong, fleet expansion nonetheless presents potential financial risks. "A key ratings issue for shipping companies will be the ability to manage expansion risk while avoiding the temptation to over leverage," says Ms. Allen. "Ordering new ships inevitably increases debt leverage, and in the absence of assured long-term employment, shippers will be exposed to a high degree of financial risk if new buildings are financed by high levels of debt," she adds. According to the report, much depends on how accurately shippers gauge future demand and supply at a time when capacity is increasing and an oversupply of ships results in more intense competition and additional pressure on freight rates. Efforts to improve cost effectiveness will also be key to maintaining ratings, it says. The report -- entitled Industry Snapshot: Asia Pacific Shipping Sector -- is part of Moody's Industry Snapshot series, which offers succinct and incisive looks at particular sectors. The report can be found at http://www.moodys.com/ |
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