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Moody's: Shipping crisis strains Maersk's credit worthiness

Poor second quarter results and the downturn in the container shipping sector strain Maersk's - and Hapag-Lloyd's - credit worthiness, Moody's tells ShippingWatch. So far, however, their ratings remain in place, but Moody's is keeping a close eye on the sector these days.

Photo: PR-foto/Maersk

International credit rating bureau Moody's notes that recent developments in the container industry combined with disappointing second quarter result from Maersk Line and Hapag-Lloyd put a strain on the credit worthiness of the two carriers, explains Moody's senior analyst and VP Maria Maslovsky to ShippingWatch following an update about Maersk Line and Hapag-Lloyd.

Moody's notes in the update the negative impact on the two carriers of the fact that the second quarter results were as low as was the case. Maria Maslovsky explains that the bureau is not planning, or even considering, to lower the ratings for the two North European container carriers, which currently stand at Baa1 and B2, respectively.

The credit ratings are fixed for now, but Moody's is keeping a close eye on developments in the container sector these days, at a time when rates and the carriers' finances are scraping rock bottom. And she does not hide the fact that the market conditions and the latest key figures from the sector put added pressure on the industry and the two market players.

"They are operating in a difficult market environment. In our view their credit worthiness is weaker than previously," she tells ShippingWatch.

Maersk's credit rating is strong, she explains, and stronger than Hapag-Lloyd's, due to the fact that the German carrier operates exclusively in container shipping, whereas Maersk Line as part of the Maersk Group belongs to a conglomerate with activities scattered across a range of different sectors.

Up to AAA

The Moody's rating is a crucial factor for virtually all banks and financial institutions lending money to the business sector. The higher the rating, which goes all the way up to AAA, the better. The rating bureau has no set dates for when it publishes updates, as this depends entirely on how the sectors develop and what the published numbers look like.

In its update, Moody's cites the fact that Maersk Line's operating profit declined 63 percent in the second quarter, and that container rates dropped 24 percent. For Hapag-Lloyd, the operating profit went down 65 percent and freight rates dipped 19.4 percent.

"We expect global trade to grow 2.6 percent this year and 3.0 percent next year, after growing just 1.6 percent in 2015. At the same time, the global container fleet is at an all-time high of approximately 20 million twenty-foot equivalent units, teu, with more than 2.5 million teu scheduled for delivery over the next three years. These factors are putting severe negative pressure on freight rates," writes Moody's.

Even though more, bigger and younger container vessels are being scrapped, Moody's projects that this is far from sufficient to bring balance to the market:

"However, we still project that supply will continue to exceed demand for the balance of 2016, a conclusion supported by Hapag-Lloyd’s negative revision to its 2016 outlook, in which both EBIT and EBITDA decrease for full-year 2016. Meanwhile, Maersk continues to expect significantly lower 2016 results compared with 2015 for both the overall company and for Maersk Line," notes Moody's.

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