The outlook for the global shipping industry has been revised downwards as aggregate earnings face a sharp decline in 2023. Moody’s Investor Services said earnings across the industry had likely peaked in 2022 and that similar results would be difficult to match next year, particularly for the highly lucrative container and dry bulk sectors. “Rapidly slowing growth in Europe’s largest economies amid general high inflation and soaring electricity prices, and a bleaker outlook for global economic growth pose risks to the industry as a whole,” Moody’s said. But any downturn was coming from an extremely high base. “Container carriers are on course for another year of record high profitability,” the ratings agency said. “However, signs pointing to a more benign market environment in 2023-24 abound: An orderbook implying supply greatly outstripping demand, decreasing utilization rates and falling spot rates.”

While port congestion was already easing, container demand was also likely to soften over the next 12 to 18 months, further reducing bottlenecks. “As a result of these factors, we predict that the aggregate earnings before interest, tax, depreciation and amortization (Ebitda) of the largest container shipping companies we rate globally will fall by up to 70% in 2023 compared with 2022,” it said. “However, the sharp expected drop in combined earnings in 2023 is mainly because of tough comparisons with current data, the base effect. This year will go down as the strongest year on record for container shipping.”

A slowdown in global GDP growth was also likely to affect dry bulk charter rates, which hit their peak in 2021, although the sector would suffer less from overcapacity as fewer newbuildings were on order. “We expect dry bulk charter rates to be lower over the next 12 months after hitting multi-year highs in 2021,” said Moody’s. “The Baltic Dry Index (BDI) has fallen to pre-pandemic levels from the very high levels in 2021 amid significant uncertainty around economic activity, the Russia-Ukraine conflict and seasonal corrections.” Nevertheless, it was optimistic that China’s growth would be stronger in 2023 than this year, driving higher demand for iron ore.

The most optimistic outlook for the next 12 months is for tankers, where charter rates had already increased this year. “We expect rates to remain at least stable over the next 12 months, given ongoing political tensions and limited supply growth in 2023. However, risks to global oil demand from weakening global growth could cloud prospects for tankers.” The redirection of oil flows following the Russia-Ukraine conflict had already led to higher tonne-mile demand for tankers, especially for aframax and suezmax vessels. “While EU sanctions on Russian oil imports will only come into effect later this year, many European companies have already shunned crude and oil products from Russia and turned to source fuels from more distant markets. This has increased the average travel distance for tankers to transport cargo in the sector, thereby boosting demand.”

For the wider industry, however, the outlook was cloudy. “With the macroeconomic environment rapidly deteriorating, driven by the ongoing military conflict in Ukraine, energy prices entrenched at high levels and general inflation continuing to burden households, post-pandemic elevated demand for containerized goods and commodities seems to have peaked, leading to declining freight rates,” Moody’s said. “Spot rates for container shipping have recorded lower levels each consecutive week since peaking at the end of last year and the same broadly holds true for dry bulk. It did emphasize, however, that even with the geopolitical and macro-economic headwinds it faced, shipping had been incredibly successful over the past two years and would continue generate high earnings. “We still expect the industry’s combined earnings to be almost 75% higher in 2023 than in 2019.”