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5/18/2013 12:00:00 AM

Three emerging trends -- falling US oil imports, the return of some manufacturing capacity to rich industrialised

nations and advances in vessel design -- could significantly change the competitive landscape for global shipping
companies and affect their creditworthiness over the next five years, says Moody's Investors Service in a report
on the sector published today.
"The credit impact arising from each of these trends is likely to vary according to industry segment -- crude oil
tankers, containers and dry-bulk -- creating the potential for a few winners and many losers," says Marco Vetulli,
a Vice President - Senior Credit Officer in Moody's Corporate Finance Group and author of the report.
"Rated companies adversely affected by these trends that do not proactively manage these risks are likely to face
rising operating and financial pressures that could eventually hurt their ratings."
Moody's notes that the ongoing shift in trade patterns owing to falling US oil imports has credit-negative
implications for the entire tanker industry as it is likely to depress freight rates. Crude oil tanker companies,
such as Overseas Shipholding Group Inc. (OSG, unrated), that operate large fleets of the types of vessels typically
used on long-haul routes are the most vulnerable, although OSG's US Flag business will benefit. Companies that
operate smaller, more flexible tankers, such as Sovcomflot JSC (Ba2 stable) and Navios Maritime Acquisition Corp.
(B3 stable), are likely to fare better.
The partial reshoring of manufacturing capacity back to rich industrialised nations and rising income levels in
Asia are altering patterns in the trade of semi-finished products, with credit implications mainly for the container
segment. Moody's expects that companies with operations on Asia to US trade routes, such as CMA CGM S.A.
(B3 positive) and Hapag-Lloyd Holding AG (B2 negative), could be adversely affected as transportation volumes
on these routes are likely to fall. Furthermore, such companies might need to rebalance some of their capacity
from long-haul trade to smaller vessels more suited to intra-Asia trade. Conversely, companies, such as
Wan Hai Lines Ltd. (Ba3 negative), that already operate mainly on intra-Asia routes are likely to benefit from the
increase in cargoes. Tightening environmental regulations and high fuel costs are strong incentives for shipowners
to invest in the new generation of "greener" vessels to cut operating expenses, but the lack of financing is
a constraint. Although this trend is common to all shipping sectors, it represents a particular challenge for the
dry-bulk industry, where the average fleet age is quite high and the current financial condition of most players
is fairly weak. However, Moody's would expect Navios Maritime Holdings, Inc. (B2 negative) to be less adversely
affected by this trend than other dry-bulk carriers because it has a relatively young and efficient fleet.
Japanese conglomerates are likely to be affected to a lesser extent. While not immune to the global trends,
the two rated Japanese companies, Nippon Yusen Kabushiki Kaisha (NYKK, Baa2 negative) and Mitsui O.S.K. Lines, Ltd.
(Baa3 negative), should fare better than some of their peers because of their sheer size, diversification and
solid relationships with banks.