Ratings agency Fitch has said that the Indian shipping industry faces a negative outlook during 2011 on account of lower freight rates and global slump in the sector.

“Fitch Ratings maintains a negative outlook on the Indian shipping industry in 2011, as freight rates will remain depressed because of the demand-supply imbalance caused by a net increase in capacity exceeding demand,” it said in a statement.

The ratings firm said that lower freight rates have affected revenue generation across shipping companies, in line with the global trend and said major players will be under pressure in 2011.

“Fitch expects revenues and operating profits of the shipping companies (GE Shipping, Varun, Essar, SCIL, Pratibha) to be constrained in 2011, given continued low freight rates,” it said.

During 2011, low freight rates are expected across all segments such as dry bulkers, tankers and containers, and few Indian shipping companies are expected to undertake aggressive capex plans.

“It is unlikely that macroeconomic factors will be able to bring about a reversal in the outlook from negative to stable given the high industry overcapacity expected in the near future,” Fitch said.

It added that companies with a greater proportion of their ships on long-term charters cannot expect to be completely protected against the prevailing low charter rates, as most contracts have a tenor of one year and contract rates will be reset at prevailing low rates upon renegotiation.

The ratings agency said the debt levels of Indian shipping companies are not likely to come down and those with constrained cash flows are likely to face some refinancing pressure.

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