Shipping Industry Likely To Sustain Performance In FY24, May See Moderation In Margins: Report

The domestic shipping industry is projected to sustain its performance in the current fiscal, albeit with some moderation in operating margins, CareEdge Ratings said in its report on Wednesday.

The outlook for the Indian shipping industry is stable, primarily because the mid-size tanker (both crude and product) and dry Bulk segments account for the majority of vessel capacities, it said.

These segments are anticipated to fare well in the overall shipping industry, it said.

The Indian shipping fleet is primarily dominated by crude and product tankers, accounting for the majority of the overall capacity at 57 per cent.

While dry bulk carriers account for 16 per cent of the total fleet, the container vessels share stands at 5 per cent, as per the rating agency.

With the global merchandise trade volume projected to slow down in CY 2023 and given the highest capacity additions in CY2023-CY2024, the container shipping segment is expected to be the worst impacted, it said.

The recovery in global trade is anticipated to have a positive impact on the shipping industry, indicating potential opportunities for growth and improved earnings, it said.

The tanker segment is expected to maintain its previous year's performance in the current calendar year as well due to the lowest capacity addition and redistribution of crude trade flow by key consuming economies, CareEdge Ratings said.

The performance of the dry bulk carrier segment is expected to improve in the second half of CY2023 driven by supply-side dynamics, according to the report.

The report noted that the financial performance of the two largest domestic shipping companies-- Shipping Corporation of India and Great Eastern Shipping Company-- reflects a consistent improvement in revenues and profitability during FY23.

CARE Ratings said it anticipates that these companies, assumed to be representative of the domestic shipping industry contributing around 45-50 per cent of the country's total tonnage, will demonstrate a stable business and financial risk profile in the coming year.

It said that the shipping industry has witnessed a period of recovery in charter rates and profitability across various vessel segments in the past two calendar years (specifically from CY2022 onwards for the tanker segment and over the CY2021-CY2022 period for the container carrier and dry bulk segments).

However, the overall industry performance is currently exhibiting signs of weakness, as supply in several segments is expanding at a faster pace than demand, posing potential challenges in the market, it said.

The tanker segment is presently characterized by low order books for new ships at global shipyards, indicating a positive earnings outlook for CY2023.

Conversely, the container, larger LPG carrier, and capsize bulk carrier segments are grappling with unfavourable market conditions, primarily due to significant order books at shipyards resulting in a potential supply surplus, as per CareEdge Ratings.

In summary, while the crude, product, and chemical tanker segments demonstrate a positive earnings outlook for CY2023 owing to their low order books, the container, larger LPG vessels, and capesize bulk carrier segments face challenging market conditions with the possibility of surplus capacity in CY2023-CY2024, the rating agency said.