Danske Bank: Shipping about to enter new upturn

In a review of all business sectors, Danske Bank is especially positive about shipping in terms of improved creditworthiness and market potential in the years to come. The beginning of a 5-7 year cycle is underway, says the bank.
Photo: Lauritzen Kosan
Photo: Lauritzen Kosan

The shipping industry is on the threshold of an upturn that could last for the next five to seven years. For one of the world's major shipping banks, this means that the downturn in recent years has bottomed out, and that the traditionally cyclical shipping market is entering a growing, positive market that could last for a long time.

The optimistic forecast for the sector is presented in a new credit analysis performed by that bank and which covers all business sectors, and only two industries in the analysis are awarded the positive label "improving" - one of these is the shipping sector.

But more noteworthy is the fact that the bank estimates that the fundamental factors necessary for a global recovery of the shipping industry are now in place.

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This includes the expectation that the global economy is growing. This goes for the fairly limited number of ships that have been ordered. And it applies to the fact that the industry at long last looks to have digested the massive hump of newbuilding deliveries that came in the wake of the 2008 boom.

Better rating for Lauritzen

Two specific companies that have seen their standing improve at Danske Bank, in terms of credit ratings, are Odfjell and J. Lauritzen. J Lauritzen has been through serious financial difficulties, but under CEO Jan Kastrup-Nielsen the company has reduced its balance and is now focusing on dry bulk and smaller gas vessels. As such, Danske Bank points to significantly reduced risk related to the two companies.

The banks says the following about the shipping industry as a whole:

"Shipping cycles historically last 5-7 years, 2014 looking to be the first year in the recovery stage and moving towards mid-cycle earnings," says the bank.

Chemical tanker on the way

The bank's shipping analyst, Bjørn Kristian Røed, tells ShippingWatch that major shipping conglomerates such as Maersk Line and BW are still the ones holding the best credit ratings. The bank is generally positive toward companies that have more than one business unit to carry their weight.

On the other hand - that is, things that could pull a carrier's rating down - betting exclusively on individual areas such as dry bulk and, especially, the spot market is more risky.

"We're seeing a positive trend in the shipping market. This applies broadly across the segments, including chemical tanker, though we don't believe this market will really take off until 2015 or 2016," says Bjørn Kristian Røed.

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