Subdued freight rates may affect the earnings of the Indian shipping industry and this prompted India Ratings and Research to maintain a negative outlook on the industry.
The ratings agency, which is a part of the Fitch Group, feels that freight rates for dry bulk (coal and iron ore) may be hit by high capacity additions.
However, it expects container and tanker rates to exhibit greater stability around the current low levels, driven by relative stability in US demand as well as in manufacturing activity in emerging economies including China, India Ratings said in a statement.
In 2013, high fuel costs and muted revenue may affect the operating margins of shipping companies globally, the agency said. Bunker fuel prices (up to 40 percent of operating costs) would likely remain high in line with crude prices, the agency said in a statement.
Indian companies would also continue to be affected by global trend in low freight rates given the global nature of the shipping industry, the statement said.
Companies that borrowed heavily to fund their expansion plan may struggle to repay the debt because of reduced profitability in 2013. It is learnt that certain firms embarked on large debt-fuelled capital expenditure around 2007-2008 when asset valuations had peaked, it said.
Considering that banks globally and in India continue to be wary of lending to the shipping sector, debt refinancing would also be a challenge, it said.
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