December 11 - Credit ratings and research oufit, Fitch Ratings has revised its global shipping sector outlook for 2016 to negative from stable in 2015.
It said it expects muted global trade growth and the economic slowdown in emerging markets to exacerbate overcapacity, leading to declining and volatile freight rates. But performance will vary across the segments, with dry bulk and container shipping under pressure, while tanker and LNG shipping fare better.
China's slower growth and economic transition will pose particularly significant risks for the shipping sector due to its key role in global trade, accounting for two-thirds of global iron ore imports and 20 percent of world coal imports.
Weaker demand growth will increase overcapacity, the key factor blighting the shipping sector's recovery prospects and putting pressure on freight rates.
Fitch Ratings expects container shipping capacity to rise 6 percent in 2016 on top of a 9 percent increase in 2015, easily outpacing demand growth of 2 percent this year and 3-4.5 percent in 2016.
Shipping companies will continue to implement defensive measures including cost-cutting, which will be helped by lower bunker prices, slow steaming, idling and the cancellation of sailings to achieve profitability.
But Fitch Ratings believes these measures are insufficient to lead to a protracted recovery in the sector. Rigorous capacity discipline along with a pick-up in demand would be necessary to reach a sustained equilibrium.
The company expects larger container shipping companies that successfully implemented cost-containment measures to remain profitable in 2016. But the financials of smaller, unrated, especially dry-bulk shippers will remain stretched, which will probably lead to more bankruptcies.
For more details on Fitch Ratings' expectations for the sector, see "2016 Outlook: Shipping", which is available at www.fitchratings.com