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Moody's says Asian liner profits still pressured
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08:18, September 24, 2009

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Moody's Investors Service said here Wednesday that it expects the Asia Pacific liner industry's profitability to remain under pressure over the next 12 to 18 months, but better than global peers.

In a report on the Asia Pacific liner industry, Moody's says that this is based on the probability that near to medium-term weakness in the U.S. and European economies, and the potential trade friction between these economies and exporting Asia Pacific countries will remain a barrier to any meaningful recovery in the sector.

According to the report, a full recovery among the region's liner operators will be unlikely before 2012.

"Liner companies' profit margins in the region have been impaired by high bunker costs in 2008, and exacerbated by the drastic decline in demand for container shipments in 1H 2009," says Peter Choy, a Moody's Senior Credit Officer and the report's author.

"Declining exports and surplus supply of vessels in first half 2009 have driven down revenue by more than one-third for most Asia Pacific liners, resulting in most reporting operating losses and weakened credit profiles," he added.

Asia Pacific liners' financial positions will remain weak despite a limited rebound triggered by recent restocking and government economic stimulus measures. A more sustainable recovery in liners' profitability will depend on improved trade flow and reduced surplus capacity, says the report.

"In the meantime, Moody's ratings will focus on these companies' liquidity and capital, and whether they are sufficient for them to survive the next two years or so," says Choy.

The report also notes, however, that while asset foreclosures are increasingly likely in the next 6 to 12 months, these could benefit the stronger Asia Pacific liners by removing operating tonnage from the market, and thereby reducing competition.

In addition, Asia Pacific liners could emerge from the current down market faster than their global peers due to the better economic environment and the fact that the region boasts the world's three largest global ports.

Higher consumption growth than in developed countries, the presence of a global manufacturing base, and the fact that some of the Asian smaller ports that are more suitable to small sized vessels, also work in Asia Pacific's favor, says the report.


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