The ports sector in the Asia-Pacific sector will suffer the strongest impact from the headwind of slowing economies in the region, Standard and Poor’s Ratings Services said in its latest report.
In the report “Asia-Pacific Sector Outlook 4Q 2016: Net Negative Outlook Bias Rises to 13 percent from 11 percent,” S&P said ports across the region were facing the strongest headwind with softening gross domestic product growth and potential short-term impact from the recent bankruptcy filing of South Korean cargo liner Hanjin Shipping.
S&P said shipping ports were faring the worst because of weak volume growth.
“Ports dedicated to commodity trades could benefit from the recent rebound of coal prices although this would reduce the downside risk rather than providing true upside,” S&P said.
S&P said it expect business conditions for other transportation sub-sectors such as road, airport and rail to remain broadly stable with some potential upside for rail operators exposed to commodity prices.
However, it warned that for the ports sub-sector, the situation was more about “reducing downside risks.”
“The current negative rating bias is primarily because of the negative outlook on the China and Australia sovereign ratings, which impacts the ratings on state-owned enterprises,” the report added.
The report noted that in emerging Asia, the main risk “is a material slowdown since investments continue to be high and lumpy, with assets having limited ability to adjust.”
“The second risk is the tightening in credit markets as a result, which would further stretch balance sheets as earnings weaken,” it added.
Container shipping is also grappling with overcapacity, the report said.
It said capacity issues in container shipping freight were weighing on earnings despite the recent bankruptcy of Hanjin.
“Dry bulk shipping should be nearing a bottom, with volume recovery likely in 2017,” the report said.
S&P added container shipping freight had been weak due to stagnant economies and persisting capacity pressure, which prompted consolidation and alliances among key global players.
“We expect container operators to remain under strong earnings pressure even after Hanjin Shipping’s filing for court protection,” it said.
In addition, S&P said, the tanker market was likely to weaken because of higher capacity pressure.
“The dry bulk shipping market has been at a historical low since the beginning of the year. We believe this is near a bottom and that the market is likely to show gradual improvement given expectations of trade volume recovery and tighter capacity control in 2017,” it said.
It said a slowdown of the Chinese economy that is worse than expected “has a low possibility of occurring but (it will have a) high impact, particularly on the dry bulk and tanker segments.”
Source: Manilla StandardPrevious Next