According to a CRISIL report, domestic shipping companies’ revenue and margins have declined in the current fiscal year after increasing by 35% in fiscal 2023 due to a spike in charter rates brought on by the disruption of international seaborne trade brought on by the conflict between Russia and Ukraine and pent-up demand following the pandemic.
It is anticipated that the revenue growth of domestic shipping companies will continue to decline. According to a CRISIL Ratings assessment, domestic shipping businesses’ revenue growth is predicted to continue its downward trend, with an on-year decline of 8–10% in fiscal 2026. It further stated that this will be due to a softening of charter rates for petroleum products and crude oil in the face of stagnating demand, as well as a lowering of those for dry bulk carriers after fleet increases.
According to the CRISIL report, revenue and margins that declined in the previous fiscal year are still declining in the current one. This is after they increased by 35% in fiscal 2023, when charter rates skyrocketed due to disruptions in international seaborne trade brought on by the conflict between Russia and Ukraine and pent-up demand following the pandemic. It did, however, note that a more significant drop in revenue is unlikely because long-haul shipping routes are still in demand despite the ongoing geopolitical tensions, and total tonne-mileage is still robust.
Further, lower revenue will mean that operating margin will also fall to 32-34 per cent next fiscal from over 40 per cent last fiscal. It will still be higher than the cyclical average of 25-30 per cent for the industry and vary by companies, depending on fleet and contract mix. The credit profiles of shipping companies would however remain stable given modest capital expenditure (capex) plans, CRISIL said. CRISIL studies five shipping companies, which account for about half of the 20 million metric tonne deadweight tonnage (DWT) of shipping fleet in India, to report the findings.
Fleets of domestic shipping companies are dominated by tankers that carry crude oil and clean petroleum products (around 70 per cent to total DWT), followed by dry bulk carriers hauling unpackaged commodities such as coal, iron ore and grains (~20 per cent). The balance is distributed among container ships, gas carriers and others.
Charter rates correlate with global demand-supply dynamics. While those for crude and petroleum product tankers began on a firm footing this fiscal, they moderated in the second quarter due to lower consumption, leading to an average 6 per cent decline on-year in the first half. With this trend in rates expected to continue, the second half could see a steeper on-year decline, on a high base of previous fiscal caused by the Red Sea crisis.
With the growth in demand for key commodities, especially iron ore and coal (accounting for 40-45 per cent of the global dry-bulk trade) and higher tonne-mile outpacing fleet growth, CRISIL said, average charter rate for dry bulk carriers had almost doubled during the first half of this fiscal. This will likely continue before charter rates soften next fiscal as additions to the fleet are expected to be strong on the back of scheduled deliveries and healthy orderbook position of ~10 per cent at yards.
Debt to Ebitda ratio, a key credit profile indicator, for shipping companies is expected to moderate to 2.0-2.2 times next fiscal compared with 1.4 times last fiscal. That said, CRISIL maintained, healthy liquidity and monetisable nature of assets will absorb the impact of cyclicality and keep credit profiles healthy. “Easing of the ongoing geopolitical conflicts or any further escalations that may alter the charter rates will bear watching,” it concluded.
