Domestic shipping companies are likely to see a further 5-7 per cent decline in revenue in the next financial year amid normalisation of the rates, a report said on Thursday.
This follows a steep 23-25 per cent fall in their revenue in the current fiscal (2023-24) after a 35 per cent growth in the last financial year when charter rates had surged because of geopolitical conflicts (including the Russia-Ukraine war) and higher demand from China post-pandemic, credit rating agency CRISIL said on Thursday.
While the margin profile may vary widely across players operating in different segments, CRISIL said the average operating margin may continue to moderate to 33-35 per cent in the next fiscal driven mainly by the correction in charter rates.
However, it will remain higher than the pre-pandemic levels of 25-30 per cent, the rating agency forecast.
This along with modest capital expenditure (capex) plans, should sustain the healthy credit risk profiles of shipping companies, CRISIL said.
A CRISIL study of five shipping companies, which account for about half of the around 20-million metric tonne (MMT) deadweight tonnage (DWT) of shipping fleet in India, indicates as much, it said.
The shipping fleet of domestic companies is dominated by tankers that carry crude oil and petroleum products (contributing to around 70 per cent of total DWT), followed by dry bulk carriers carrying unpackaged commodities such as coal, iron ore and grains (around 20 per cent), according to CRISIL.
The balance is distributed between container ships, gas carriers and others.
According to CRISIL, the charter rates correlate with the global demand-supply dynamics.
“We are seeing charter rates for crude and product tankers correcting 20-25 per cent this fiscal from the average of around USD 50,000/day last fiscal, as global uncertainties (caused by Covid-19 followed by geopolitical conflicts) ease,” said Anuj Sethi, Senior Director, CRISIL Ratings.
He said that expecting the current trend in global trade continues, charter rates could further moderate next year, but will remain higher than the pre-pandemic level, supported by buoyant tonne-mile demand and limited new fleet deliveries.
“Charter rates for crude oil and petroleum product tankers will be supported by growing imports by China and India; also, to be aided by better fleet utilisation given higher tonne-mile demand due to change in trade routes following the Russia-Ukraine conflict,” the rating agency said.
On the supply side, capacity addition for tankers is expected to remain limited given the decadal-low orderbook, which will keep charter rates much higher than the pre-pandemic level of USD 15,000-25,000/day, it said.
But the charter rates for dry bulk are expected to remain range-bound this fiscal and the next, with moderate growth in demand for key commodities, especially iron ore and coal (accounting for 40-45 per cent of the global dry-bulk trade), and moderate fleet orders, it said.
According to CRISIL, the average charter rates had declined last fiscal due to lower demand of these and other key commodities due to subdued industrial / construction activities in major economies.
These corrections seen in charter rates will also impact operating profitability of shipping companies. Said Joanne Gonsalves, Associate Director at CRISIL Ratings.
“We expect average operating margins of shipping companies to moderate 300-500 basis points to around 38-40 per cent this fiscal and further to 33-35 per cent in fiscal 2025 as charter rates normalise. Albeit, operating margins will continue to remain higher than pre[1]pandemic levels.”
CRISIL Ratings said it also expects credit profile of shipping companies to remain stable, benefitted by healthy cash flows and limited debt addition as no major fleet addition is planned.
This will ensure comfortable debt metrics, despite a slight moderation from fiscal 2023 levels, said Gonsalves.
It also said that any trade disruptions (including escalation of the Middle-East conflict) impacting charter rates, adverse movement in fuel costs or any regulatory changes which could impact fleet utilisation could alter performance expectations and will bear watching.
