BDO says shipping must improve its risk management procedures

Sound enterprise and business risk management are making an improved contribution to commercial success in the shipping sector, according to the latest annual Shipping Risk Survey by leading shipping adviser and accountant BDO. But the industry still needs to improve its risk management procedures in the face of a growing level of threat to its security.

Respondents to the BDO survey rated the extent to which enterprise and business risk management is contributing to the success of their organisation at an average 6.4 out of a possible maximum score of 10.0, compared to 5.9 in the 2018 survey. The survey was launched in 2015 with a rating of 6.9.

Owners posted the highest score of all main respondents, followed by managers, but the ratings for charterers and brokers were significantly down on last year. Asia was ahead of Europe in terms of geographical sentiment, but both were behind the Middle East.

The cost and availability of finance was cited by 29% of respondents (up from 17% in the previous survey) as the factor likely to pose the highest level of risk. It was the number one risk factor for owners, charterers and managers, and was deemed to pose the highest level of risk in all geographical areas with the exception of North America. Demand trends, cited by 18% of respondents, featured in second place having ranked first at 17% last year, followed by competition (down from 16% to 11%). Geopolitics were ranked in fourth place at 8%, compared to 6% a year ago. There were also noticeable increases in respect of breaches in health and safety (up from 1% to 6%) and fuel emissions (up from 3% to 7%).

Respondents to the survey felt that the level of risk posed by most of the factors which impacted their business would remain steady over the next 12 months, with the exception of fuel emissions, bunker and fuel costs, cyber security and geopolitics, which were all perceived to have the potential for increased risk.

Overall, 67% of respondents (compared to 74% last time) felt that the senior managers in their organisations had a high degree of involvement in enterprise and business risk management. Meanwhile, 18% (up from 16% previously) said that senior management’s involvement was limited to ‘periodic interest if risks materialise’, 11% (up from 10% last time) said that senior management ‘acknowledged but had limited involvement in risk management’, and 4% (compared to 1% last time) said that senior management had no involvement whatsoever.

Overall, 34% of respondents (compared to 36% in the previous survey) confirmed that enterprise and business risk was managed by means of discussion without formal documentation, while 43% noted that risk was documented by the use of spreadsheets or written reports, compared to 48% previously. Third-party software was employed by 10% of respondents (4% last time) to manage and document risk, while 8% used internally developed software, as opposed to 7% at the time of the previous survey.

On a scale of 1.0 (low) to 10.0 (high), changes to legislation (although down to 3.7 from 3.8 last time) was deemed the factor most likely to result in a material mis-statement in companies’ period-end financial statements. Next came non-compliance with existing legislation, estimates of claims and provisions, disclosure of commitments and contingencies, and automated IT processes for financial reporting, all of which recorded a rating of 3.5. The rating for changes in accounting standards, meanwhile, fell to 3.0 from 3.4 last time.

Michael Simms, Partner, Shipping & Transport at BDO, says, “There has never been a more obvious and pressing need for shipping to identify and reduce its exposure to risk. However, the findings of our survey suggest that the industry is still not fully cognisant of the nature and extent of the risks to which it is exposed, and will need to address a number of issues in order to preserve its integrity and to maintain and increase its attractiveness to existing and new investors alike.

“Shipping is a classic risk-and-reward industry, and one which throughout its history has both rewarded and punished those taking the risks. Generally speaking, those who do their due diligence, and who come up with a sound business plan, are the ones best placed to reap the rewards.

“In many respects, today’s industry faces the same challenges that it did two centuries ago, not least competition, tonnage supply and demand, and operating expenses. But there are new problems to be faced now, such as cyber security and the cost of environmental compliance, which today’s industry will ignore at its peril.

“Going forward, it may be expected that further attention will need to be paid by the industry to managing other emerging risks such as the OECD scrutiny of low-tax jurisdictions as well as the increased focus on the ‘greening’ of finance.

“The fact that cyber security and geopolitics were identified by the respondents to our survey as among those issues having the potential for increased business risk over the next 12 months suggests that the industry is well aware of the dangers posed in these two volatile areas. And yet only 2% of our respondents felt that IT and cyber security posed the highest risk to their organisation.

“The cost and availability of finance was far and away the biggest perceived risk, but sourcing finance will no longer be an issue for companies which are hacked out of business because of a lack of IT integrity and security. Meanwhile, given the proximity of the IMO 2020 implementation deadline, it was no surprise to see both fuel emissions and bunker and fuel costs rated as having increased business risk.

“The encouraging news is that the respondents to our survey emerged as significantly more satisfied than they were twelve months ago that sound enterprise and business risk management was contributing to commercial success. However, it was of note that fewer respondents than last year had a dedicated risk committee.

“Although there was an increase this time compared to 2018 in the number of such committees meeting on a quarterly, annual and semi-annual basis, there was disappointment in the shape of a fall, to the lowest level in the five-year life of the survey, in the number of senior managers with a high degree of involvement in risk management. Risk management must start at the top, and be seen to sit there comfortably.

“There was a decline both in the number of respondents who noted that risk was documented by the use of proper written documents, and in the level of undocumented risk management discussions. But whereas last year’s survey revealed a drop in the use of third-party software and in the use of software developed internally, this time the corresponding figures were up.

“Shipping is a highly entrepreneurial business, and entrepreneurialism and risk management can make uncomfortable bedfellows when one or other is hogging most of the bedclothes. Our survey suggests that the industry needs to improve its risk management procedures. Shipping confidence may be holding up reasonably well, but shipping cannot afford to be complacent about its exposure to risk. Awareness of risk should not be confused with risk aversion, which is not - and never will be - a characteristic highly prized in the international shipping industry.”


Note to editors

The BDO (formerly Moore Stephens LLP) Shipping & Transport team has extensive experience delivering accountancy, tax and advisory services to the sector worldwide.

BDO delivers key information and insights to the shipping community, including the annual OpCost report, the quarterly Shipping Confidence Survey and a host of thought leadership on topical issues, such as regulatory developments and market conditions.

https://www.bdo.co.uk/en-gb/industries/shipping-and-transport


BDO LLP
BDO LLP operates in 17 locations across the UK, employing nearly 5,000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.

BDO’s global network
The BDO global network provides business advisory services in 162 countries, with 80,000 people working out of 1,600 offices worldwide. It has revenues of $9bn.

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Shipping confidence dips as trade wars intensify

Confidence in the shipping industry fell in the past three months to its lowest level for two and half years, according to the latest Shipping Confidence Survey from leading shipping adviser and accountant BDO. Yet owners, charterers and managers were more confident than they were at the time of the previous survey in May 2019.

The average confidence level recorded by the survey in the three months to end-August 2019 was 5.8 out of a possible maximum of 10.0. This compares to the figure of 6.1 recorded for the quarter ended May 2019.

Confidence was highest in the chartering sector (up from 6.2 to 7.0), while the increased ratings for owners and managers were from 6.3 to 6.4 and from 5.8 to 5.9, respectively. The rating for brokers, however, was down from 5.7 to 5.1.

Confidence was up in Asia from 6.0 to 6.8 – the highest figure for this region since the survey was launched in May 2008 with an overall rating for all respondents in all geographical areas of 6.8 out of 10.0. The rating for Europe, however, was down, from 6.1 to 5.7.

According to the BDO survey, the likelihood of respondents making a major investment or significant development over the coming year was up from 5.4 to 5.5 out of 10.0. Charterers’ confidence in this regard was up from 5.6 to 6.8, and owners’ from 6.3 to 6.5. The ratings for managers and brokers were also up, from 4.8 to 6.1 and from 3.9 to 4.4, respectively. Expectations were up in Asia (from 5.5 to 6.6) whilst in Europe they were unchanged at 5.4.

The number of respondents expecting finance costs to increase over the coming year was down from 48% to 25%. The figures for all major categories of respondent were down, and in the case of owners and managers to survey lows of 27% and 20%, respectively.

Demand trends were cited by 23% of respondents as the factor most likely to influence performance over the next 12 months. Competition (20%) and finance costs (16%) featured in second and third place respectively in this context.

In the freight markets, the number of respondents expecting higher tanker rates over the coming year was down by 12 percentage points to 43%, with the rating for charterers tumbling from 75% to just 25%. In the dry bulk sector, expectations of rate increases were down from 48% to 39%, with charterers again recording the most marked decrease, from 80% to 25%. The numbers expecting higher container ship rates, meanwhile, fell from 35% to 19%. Net rate sentiment was positive in the tanker and dry bulk sectors, but negative in the container ship market.

Responding to a stand-alone survey question, 26% of respondents said they expected the price differential between high-sulphur fuel oil and IMO-compliant low-sulphur fuel oil at 1 January 2020 to be between $175 and $249 per metric tonne. This compares to the 23% who thought likewise in November 2018. 24% put the figure at between $100 and $174, compared to 12% previously, while 17% estimated the cost at between $250 and $324 compared to 24% last time.

Richard Greiner, Partner, Shipping & Transport at BDO, says: “Geopolitical uncertainty contributed significantly to the decline in confidence recorded in our latest survey, with a number of respondents expressing concern about burgeoning trade wars and political tension in various parts of the world. Ongoing indecision surrounding Brexit was also a salient factor.

“But it was not all bad news. Confidence on the part of owners, charterers and managers was up in the last three months, as was the likelihood of imminent major investment – in the case of owners, to an all-time survey high.

“Indications from the freight markets were less encouraging, with a fall in expectations of higher rates in all three main tonnage categories. Indeed, net rate sentiment was negative in the container ship sector for the first time in almost four years. But shipping confidence must be weighed against the highly cyclical nature of the industry. Not every reversal in fortunes is a portent of significant decline.

“Major challenges lie ahead, some of which will be beyond the control of the industry itself. But there will always be a role for the shipping industry, and particularly for one that is technically inventive and environmentally compliant and thereby attractive to investors.”

The BDO (formerly Moore Stephens LLP) Shipping & Transport team has extensive experience delivering accountancy, tax and advisory services to the sector worldwide.

BDO delivers key information and insights to the shipping community, including the annual OpCost report, the quarterly Shipping Confidence Survey and a host of thought leadership on topical issues, such as regulatory developments and market conditions.

https://www.bdo.co.uk/en-gb/industries/shipping-and-transport


BDO LLP
BDO LLP operates in 17 locations across the UK, employing nearly 5,000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.

BDO’s global network
The BDO global network provides business advisory services in 162 countries, with 80,000 people working out of 1,600 offices worldwide. It has revenues of $9bn.
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Concern over trade wars impacts shipping confidence

Confidence in the shipping industry has fallen marginally over the past three months, largely as a result of ongoing concern over trade wars and increased regulation, according to the latest Shipping Confidence Survey from leading shipping adviser and accountant BDO.

The average confidence level in the three months to May 2019 was 6.1 out of a possible maximum of 10.0. This is slightly down on the figure of 6.2 recorded in February 2019.

Confidence was up in Asia, from 5.8 to 6.0, and in North America, from 5.6 to 6.4. In Europe, meanwhile, there was a drop in overall confidence levels from 6.3 to 6.1.

The chartering sector continues to be the most volatile in terms of respondent confidence, with ratings varying between 4.7 and 7.7 during the past two years. This time, the confidence level was up to 6.2 from 6.0 three months ago. The ratings for owners and managers, meanwhile, were unchanged at 6.3 and 5.8 respectively, while the rating for brokers was down from 5.9 to 5.7.

The survey was launched in May 2008 with an overall rating for all respondents of 6.8 out of 10.0.

According to the BDO quarterly survey, the likelihood of respondents making a major investment or significant development over the coming year was up from 5.3 to 5.4 out of 10.0. Owners’ confidence in this regard was up from 5.4 to 6.3, while the rating for charterers was 5.6 compared to the survey high of 7.3 recorded last time. The confidence of managers and brokers in this category was also down, from 5.6 to 4.8 and from 4.9 to 3.9 respectively. Expectations were up in Asia, from 5.2 to 5.5, and in Europe, from 5.3 to 5.4.

The number of respondents who expected finance costs to increase over the coming year was unchanged at 48%. The figures for owners and brokers were down, but up in the case of charterers and managers.

Demand trends were cited by 26% of respondents as the factor most likely to influence performance over the next 12 months. Competition (19%) and finance costs (13%) featured in second and third place respectively in this context.

The number of respondents expecting higher freight rates over the next 12 months in the tanker market was up by 4 percentage points on the previous survey to 55%, with charterers (75%) leading the way. In the dry bulk sector, expectations of rate increases were down overall from 52% to 48%, with charterers the only category recording an increase in expectation levels. The numbers expecting higher container ship rates, meanwhile, rose by 9 percentage points to 35%. Net rate sentiment was positive in all three tonnage categories and noticeably improved on the last quarter for container ships.

When asked to estimate the level they expected the Baltic Dry Index (BDI) to reach in 12 months’ time, 50% of respondents (compared to 36 % 12 months ago) anticipated a figure of between 1000 and 1499, while 22% (42% last time) put the likely level at between 1500 and 1999. “One could be more bullish about the BDI if there was less global tension around,” said one respondent.

Richard Greiner, Partner, Shipping & Transport at BDO, says, “A small dip in confidence is not surprising given the recent volatility generated by the US-China trade wars, the heightened tension in the Arabian Gulf, the failure to conclude Brexit negotiations, and general political instability in many parts of the world. Markets love volatility, but it can have an adverse effect on confidence.

“Trade wars certainly formed the over-arching theme for this quarter, but they are not the only recurring topic. The cost and technical implications of complying with existing and incipient regulation was referenced on a number of occasions, typified by the respondent who noted that the high level of regulation “makes it extremely difficult to make a profit”.

“Despite the challenges the industry is facing, there are a number of positive indicators. New technology is making shipping more attractive to investors, and will moreover act as a trigger to accelerate the pace and extent of recycling. Higher freight rates should logically follow, and those who hold their nerve will ultimately benefit.”

The BDO (formerly Moore Stephens LLP) Shipping & Transport team has extensive experience delivering accountancy, tax and advisory services to the sector worldwide.

BDO delivers key information and insights to the shipping community, including the annual OpCost report, the quarterly Shipping Confidence Survey and a host of thought leadership on topical issues, such as regulatory developments and market conditions.

https://www.bdo.co.uk/en-gb/industries/shipping-and-transport


BDO LLP
BDO LLP operates in 17 locations across the UK, employing nearly 5,000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP has underlying revenues of £590m and is the UK member firm of the BDO international network.

BDO’s global network
The BDO global network provides business advisory services in 162 countries, with 80,000 people working out of 1,600 offices worldwide. It has revenues of $9bn.
Contacts Press office:
+44(0)20 7893 3000
media@bdo.co.uk

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Shipping confidence up despite ongoing geopolitical uncertainty

Confidence in the shipping industry has risen in the last three months despite ongoing geopolitical uncertainty, according to the latest Shipping Confidence Survey from leading shipping adviser and accountant BDO.

The average confidence level rose to 6.2 out of maximum score of 10.0 this quarter compared to 6.0 in Q4 2018.

Confidence was up in Europe, from 6.1 to 6.3, and in North America, from 5.2 to 5.6. In Asia, meanwhile, there was a drop in overall confidence levels to 5.8 from the 12-month high of 6.3 recorded in the previous quarter.

Brokers were behind much of the increase in confidence. Their score was up from 5.2 to 5.9. The rating for owners and managers was down slightly from 6.4 to 6.3 and from 6.0 to 5.8 respectively. Charterers’ confidence was also down, from 6.8 to 6.0, although this still compared favourably with the rating of 5.0 returned 12 months ago.

The survey was launched in May 2008 with an overall rating for all respondents of 6.8 out of 10.0.

According to the BDO quarterly survey, the likelihood of respondents making a major investment or significant development over the next 12 months was down from 5.5 to 5.3 out of 10.0. Charterers’ confidence in this regard reached a record high of 7.3. Brokers’ confidence was also up, from 4.1 to 4.9. However, owners recorded a fall from 6.3 to 5.4. Managers’ ratings were unchanged at 5.6.Expectations were up in Europe from 5.2 to 5.3, but down in Asia from 6.2 to 5.2.

The number of respondents who expected finance costs to increase over the coming year was down from 67% to 48%, the lowest figure since August 2016. The figures for all categories of respondent were down, in the case of charterers from 80% to 33%.

Demand trends were cited by 26% of respondents as the factor most likely to influence performance over the next 12 months. Competition (19%) and finance costs (13%) featured in second and third place respectively in this context.

Net freight rate sentiment was positive in all three main tonnage categories identified in the BDO survey, with 51% of respondents expecting higher rates over the next 12 months in the tanker market. This represents a drop of 9 percentage points on the previous survey score of 60%. Respondents expecting lower tanker rates fell from 9% to 6% this quarter.

In the dry bulk sector, expectations of rate increases were up strongly from 38% to 52%, while the numbers anticipating lower rates climbed slightly to 13% from 11%. The numbers expecting higher container ship rates rose by one percentage point to 26%, whilst those expecting lower container ship rates increased to 25% from 23%.

When asked to predict where crude oil prices would be in 12 months’ time, 37% of respondents in BDO’s survey opted for the $60-$69/barrel range. This figure is almost identical to the figure of 36% from February 2018. 17% of respondents opted for the $50-$59/barrel range compared to the 19% who did so last year, while 28% favoured the $70-$79/barrel range which was unchanged from 12 months ago.

Richard Greiner, Partner, Shipping & Transport at BDO, says, “It is encouraging to begin the year with a small uptick in confidence. Despite continuing doubts and fears about trade wars, China’s GDP, uncertainty over exchange rates, President Trump’s decision-making, Brexit and general political instability in many parts of the world, shipping can still find reasons to be cheerful.

“Net freight rate sentiment remains positive in all three main tonnage categories, and there is a growing recognition that shipping is emerging from an extremely difficult period as a leaner and greener industry.

“A number of respondents noted that the financial difficulties faced by many companies in recent years have changed the dynamics of the industry, with an increase in consolidation, restructuring and mergers & acquisitions.

“At the same time, there appears to be general recognition that the likes of the IMO 2020 and Ballast Water Management regulations will help rid the industry of poorly maintained tonnage and increase both the viability and the pedigree of the world fleet.

“This will also appeal to potential investors looking to back environmentally compliant and technologically savvy industries. It seems that the shipping industry must prioritise achieving the benefits of regulatory compliance and technological innovation over the coming years.”

The BDO (formerly Moore Stephens LLP) Shipping & Transport team has extensive experience delivering accountancy, tax and advisory services to the sector worldwide.

BDO delivers key information and insights to the shipping community, including the annual OpCost report, the quarterly Shipping Confidence Survey and a host of thought leadership on topical issues, such as regulatory developments and market conditions.

https://www.bdo.co.uk/en-gb/industries/shipping-and-transport


BDO LLP
BDO LLP operates in 17 locations across the UK, employing nearly 5,000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP has underlying revenues of £590m and is the UK member firm of the BDO international network.

BDO’s global network
The BDO global network provides business advisory services in 162 countries, with 80,000 people working out of 1,600 offices worldwide. It has revenues of $9bn.

Press office:
+44(0)20 7893 3000
media@bdo.co.uk

http://www.bdo.uk.com/news.html
http://twitter.com/BDOaccountant

Confidence slips marginally on geopolitical fears

Shipping confidence dipped very slightly in the three months to end-August 2018, according to the latest Confidence Survey from international accountant and shipping adviser Moore Stephens.

The average confidence level expressed by respondents was down to 6.3 out of a maximum possible score of 10.0, this compared to the four-year-high of 6.4 recorded in May 2018. Confidence on the part of owners, however, was up from 6.6 to 6.8, equalling the highest level achieved by this category of respondent when the survey was launched in May 2008, with an overall rating for all respondents of 6.8 out of 10.0.

Confidence on the part of charterers was also up, from 6.7 to 7.0, the highest level for nine months. The rating for managers, however, was down from 6.7 to 6.2, and for brokers from 6.3 to 4.9. Confidence in Asia was up from 6.1 to 6.3, equalling the highest rating achieved over the past 12 months.


The likelihood of respondents making a major investment or significant development over the next 12 months was up from 5.2 to 5.5 out of 10.0. Owners’ confidence was up from 5.5 to 6.5, but charterers recorded a drop from 6.7 to 4.0. Expectations of major investments were up in both Asia (from 5.9 to 6.1) and Europe (from 4.8 to 5.3).

The number of respondents who expected finance costs to increase over the coming year was down to 59% from 63% last time. Owners (up from 64% to 70%) and charterers (up from 33% to 50%) expected such costs to increase, but managers (down from 65% to 45%) and brokers (down from 75% to 71%) were of the opposite opinion.

The number of respondents expecting higher rates over the next 12 months in the tanker trades was up by 3 percentage points to 53%. In the dry bulk sector, there was a 16 percentage-point fall, to 38%, in the numbers anticipating higher rates, while the numbers expecting higher container ship rates fell from 43% to 26%. Net sentiment in the tanker sector was +44, in the dry bulk trades +27, and for container ships +3.

Demands trends were identified by 28% of respondents as the factor likely to influence performance most significantly over the coming 12 months. Competition (23%) was in second place, followed by finance costs (17%).

In a stand-alone question, 44% of respondents said they expected tariff wars to have “some” impact on the industry over the next 12 months. Meanwhile, 42% categorised such impact as “considerable,” and 11% felt that it would be “minimal”.

Richard Greiner, Moore Stephens Partner, Shipping & Transport, says, “A small dip in confidence is not the news the industry wanted to hear, but confidence remains at its second-highest level for four-and-half years. Moreover, it is significant that the confidence of both owners and charterers actually increased.

“Concerns about geopolitical factors dominated the comments from respondents. These were led by President Trump’s efforts to transform US trade relations, but also included state support for shipping in China and South Korea. Shipping will always stand to reap the benefits of its global identity and presence, but will also court the risks that this must inevitably embrace.

“Fortunately, shipping is accustomed to playing on the big stage, against a volatile backdrop and to a demanding audience. The Baltic Dry Index is up on a year ago and oil prices are on the rise. These and other positive portents encourage the belief that shipping is starting to recover, albeit slowly, from a ten-year downturn.”


Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 614 offices of independent member firms in 112 countries, employing 30,168 people and generating revenues in 2017 of $2.9 billion. www.moorestephens.co.uk/shipping-transport


For more information:
Richard Greiner
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
richard.greiner@moorestephens.com

Moore Stephens identifies weak spots in shipping risk management

Confidence in the ability of sound risk management to contribute to commercial success in the shipping industry has fallen in the last 12 months, according to the latest annual Shipping Risk Survey from leading accountant and shipping adviser Moore Stephens.

Respondents to the survey rated the extent to which enterprise and business risk management is contributing to the success of their organisation at an average 5.9 out of a possible score of 10.0, compared to 6.8 in the 2017 survey.

Brokers returned the highest rating, followed by ship managers. For the first time in the four-year life of the survey, Europe was behind Asia in terms of geographical sentiment, but it was the Middle East which once again returned the highest figure (6.8).

Overall, respondents rated the extent to which enterprise and business risk was being managed effectively by their organisations at 7.3 out of 10.0, up from the rating of 7.1 recorded last time to the highest figure in the life of the survey. Charterers expressed the highest level of confidence in this regard.

Demand trends was cited by 17% of respondents (up from 16% in the previous survey) as the factor likely to pose the highest level of risk to their organisation. The cost and availability of finance (up from 13% to 16%) featured in second place, followed by competition, down from 14% to 13%. Operating costs were ranked in fourth place at 9% compared to 10% last year. There were also significant increases for bunker and fuel costs (up from 4% to 7%) and geopolitics (up from 4% to 6%). Meanwhile, supply of crew declined from 6% to 3%.

Geographically, demand trends remained the number one concern in Europe, Asia and the Middle East.

Respondents to the survey felt that the level of risk posed by most of the factors which impacted their business would remain steady over the next 12 months, with the exception of demand trends, fuel emissions, bunker and fuel costs and geopolitics, which were all perceived to have the potential for increased risk.

Overall, 73% of respondents (compared to 69% last time) felt that the senior managers in their organisations had a high degree of involvement in enterprise and business risk management. Meanwhile, 16% said that senior management’s involvement was limited to ‘periodic interest if risks materialise’, while 10% said that senior management ‘acknowledged but had a limited involvement in’ enterprise / risk management.

Overall, 36% of respondents (compared to 30% in the previous survey) confirmed that enterprise and business risk was managed by means of discussion without formal documentation, while 48% noted that risk was documented by the use of spreadsheets or written reports, compared to 45% previously. Third-party software was employed by 4% of respondents (14% last time) to manage and document risk, while 7% used internally developed software, as opposed to 10% at the time of the previous survey.

On a scale of 1.0 (low) to 10.0 (high), changes to legislation were deemed the factor most likely to result in a material misstatement in companies’ period-end financial statements. Next came estimates of claims and provisions, vessel impairment, disclosure of commitments and contingencies, and loan covenant non-compliance.

Michael Simms, Moore Stephens partner, Shipping Industry Group, says: “Shipping is a high-risk industry, and one where inattention to the proper identification and management of risk can have catastrophic consequences. It is not possible to take the risk out of shipping. But it is possible to reduce the levels of risk by identifying potential hazards and then putting in place measures to eliminate or reduce them.

“Traditionally, this has not been something at which shipping has excelled. Too often in the industry, the risk has outweighed the reward. But there has never been a more pressing need for shipping to address the way in which it analyses and manages risk.

“The nature of risk itself is changing, not least with the insidious increase in levels of cyber-crime. And the need to manage risk effectively is the subject of increasing legislation, notably in the form of the UK Corporate Governance Code and more stringent requirements in other jurisdictions.

“Our survey reveals that shipping is responding on some levels to existing and new challenges relating to the management of risk, but falling short in others. The disappointing news is that the respondents to our survey emerged as significantly less satisfied than they were 12 months ago that sound enterprise and business risk management was contributing to commercial success.

“On the plus side, almost three-quarters of respondents reported that their senior managers had a high level of involvement in risk management. There was a small increase in the number of respondents who noted that risk was managed by the use of proper written documentation, accompanied by an increase in the level of undocumented risk management discussions. But there was a 10% drop in the use of third-party software, and a smaller decline in the use of software developed internally.

“The findings of the survey suggest that shipping still has some way to go in order to significantly improve its risk management profile. This is particularly relevant if, as seems likely, we are beginning to see the start of a recovery in the industry’s fortunes after a ten-year slump. New opportunities will bring more – and some new – risks, and these will need careful management.

“Respondents to our survey deemed demand trends to be the biggest risk they face. They also identified fuel emissions, bunker and fuel costs, and geopolitics as posing an increased risk to their businesses over the next 12 months.

“There are sound reasons to explain why respondents should identify the potential risks to business posed by these classic elements of shipping practice. But it is open to question whether it is entirely prudent to classify certain other risks as merely ‘steady’, including the risk posed by the likes of cyber security, which is an increasing threat in shipping, as are changes to corporation tax and transfer pricing legislation around the world.

“This is not the time for shipping to be taking its eye off the risk ball. The tone at the top is everything, the starting point for good practice and transparent management which can improve the confidence of investors and other stakeholders. Shipping businesses which fail to recognise and address their genuine level of exposure to threat are at great risk of both financial and reputational damage.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 614 offices of independent member firms in 112 countries, employing 30,168 people and generating revenues in 2017 of $2.9 billion. www.moorestephens.co.uk/shipping-transport


For more information:
Michael Simms
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
michael.simms@moorestephens.com">michael.simms@moorestephens.com

Ten years after, shipping industry confidence holds firm

Shipping confidence held steady in the three months to end-May 2018 according to the latest Confidence Survey from international accountant and shipping adviser Moore Stephens.

The average confidence level expressed by respondents was unchanged at the four-year high of 6.4 out of 10.0 recorded in February 2018. Confidence on the part of owners was also sustained at a four-year high, of 6.6, while managers’ confidence was up from 6.4 to 6.7. The rating for charterers was up to 6.7 from 5.0 and confidence in the broking sector was up from 6.1 to 6.3. The survey was launched in May 2008 with an overall rating for all respondents of 6.8.

The likelihood of respondents making a major investment or significant development over the next 12 months was down on the previous survey from 5.5 to 5.2 out of a maximum possible score of 10.0. Confidence was highest among charterers, followed by owners (down from 5.9 to 5.5), managers (down from 5.6 to 5.4) and brokers (down from 4.0 to 3.5).

The number of respondents who expected finance costs to increase over the coming year was down to 63% from 64% last time. Whereas, in the previous survey, charterers were unanimous in expecting finance costs to increase, just a third were of that opinion this time.

The number of respondents expecting higher freight rates in both the tanker and container ship sectors was up, from 39% to 50% and from 38% to 43% respectively. In the dry bulk trades, such expectations were unchanged at 54%. Net sentiment in the tanker sector was +41, in the dry bulk trades +43, and for container ships, +32.

When asked to estimate the level they expected the Baltic Dry Index (BDI) to reach in 12 months’ time, 42% of respondents anticipated a figure of between 1500 and 1999, compared to 25% a year ago. Meanwhile, 36% put the likely level at between 1000 and 1499, contrasting with 52% a year ago.

Richard Greiner, Moore Stephens partner, Shipping & Transport, says, “It is two years since our survey reflected any decline in confidence. Net freight rate sentiment was significantly up in all the main tonnage categories. Shipping still has problems to overcome, but it continues to punch above its weight in terms of optimism.”

The survey was launched in 2008 just months before the Lehman Brothers bankruptcy which was to trigger a protracted global financial recession. Shipping markets were buoyant at the time, with an average confidence level of 6.8 out 10.0.

Over the past ten years, confidence averages out at 5.8 out of 10.0. The low point was the 5.0 out of 10.0 recorded in February 2016, since when it has only improved or been maintained. The 2010 financial crisis in Greece may have been a prime factor in the fall in confidence to 5.3 in August 2011, but thereafter began a period of fluctuation before a gradual recovery beginning in 2016 which appears not to have been affected by the birth of Brexit that year.

Over the life of the survey, demand trends have been the factor deemed most likely to affect performance, identified by an average 24% of respondents, followed by competition (20%) and finance costs (16%).

The ten-year averages for operating costs (10%), fuel costs (8%) and crew supply (5%) are all below the corresponding averages of 12%, 11%, and 11% for May 2008, doubtless due to the effects of the economic downturn and fluctuations in the price of oil. Ten years ago, regulation was cited by just 2% of respondents as a significant performance-affecting factor. Today it stands at 10% and averages 4% over the decade.

Over the last decade, an average of 48% of respondents have been of the view that finance costs were likely to rise over the coming year. When the survey was launched in May 2008, 66% of respondents were of that opinion. By February 2009, the numbers had dropped to 47% and, by 2015, to 32%. Today, the figure stands at 63%.

Ten-year averages for the freight markets reveal a sizeable increase in expectations of higher dry bulk and container ship rates. Net sentiment in dry bulk was -3 in May 2008, but the 10-year average is +24. The corresponding figures for container ships are +2 and +15. Ten-year net sentiment in the tanker sector, meanwhile, was +20 in 2008, and averaged +19 over the decade. In all three tonnage categories, current expectations of higher rates are significantly above those of ten years ago.

When the survey was launched, respondents rated at 5.9 out of 10.0 the likelihood of making a major investment or development over the next twelve months. The average for the ten-year period is 5.3. Expectations peaked at 6.0 out of 10.0 in August 2010 but reached a low of 4.8 in February 2016.

Richard Greiner says, “The survey reflects the sentiments of a volatile industry in a particularly volatile decade. Significant events have included the peak of a boom, a prolonged global financial recession, crises in the banking sector, the collapse of stock markets, the Greek debt crisis, Brexit, and an unprecedented level of government and industry bail-outs.

“Ten years is a long time in shipping, and the past decade has doubtless felt a lot longer still to those industry participants who have lived through it, even those inured to the peculiar cyclicality of the industry. Confidence may have fluctuated, but it has never collapsed, and portents for the coming decade can reasonably be expected to be better.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 614 offices of independent member firms in 112 countries, employing 30,168 people and generating revenues in 2017 of $2.9 billion. www.moorestephens.co.uk/shipping-transport


For more information:
Richard Greiner
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
richard.greiner@moorestephens.com

Moore Stephens reports four-year high in shipping industry confidence

Moore Stephens reports four-year high in shipping industry confidence

Shipping confidence reached a four-year high in the three months to end-February 2018, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens.

The average confidence level expressed by respondents was up from 6.2 out of 10.0 in November 2017 to 6.4 this time. Confidence on the part of owners was also at a four-year high, up from 6.4 to 6.6, while managers’ confidence was up too, from 6.1 to 6.4. The rating for charterers, however, continued its recent erratic performance – down to 5.0 from 7.7 in November 2017, but up on the 4.7 recorded in August 2017. Confidence on the part of brokers, meanwhile, was down from 6.3 to 6.1.

Confidence was up in Europe from 6.3 to 6.6, equalling the highest ever rating for this category of respondent in the life of the survey, which was launched in May 2008 with an average confidence rating across all respondents in all geographical areas of 6.8. Confidence was also up in Asia, from 5.7 to 6.3, and in North America, from 5.8 to 5.9.

The likelihood of respondents making a major investment or significant development over the next 12 months was up on the previous survey from 5.3 to 5.5 out of a maximum possible score of 10.0, its highest level since May 2014. Of note was the increased confidence of charterers (up from 6.2 to 6.8) and of managers (up from 5.3 to 5.6). Geographically, increased expectations of major investment were highest in Asia (up from 5.0 to 5.8).

The number of respondents who expected finance costs to increase over the coming year was up from 59% last time to 64%, the highest figure since May 2008 (66%). One respondent said, “Starting next year, the industry looks set to benefit from capacity reductions at shipyards, but the cost of funding will rise for most market participants.”

Demand trends, meanwhile, were cited by 24% of respondents as the factor expected to influence performance most significantly over the coming 12 months, followed by competition (19%) and finance costs (15%). According to one respondent, “The supply and demand equation will balance out in line with industry growth rate over the coming years.”

The number of respondents expecting higher freight rates over the next 12 months in the tanker market was down by five percentage points on the previous survey to 39%, whilst those expecting lower rates were unchanged at 13%. Meanwhile, there was a four percentage-point increase, to 54%, in the numbers anticipating higher rates in the dry bulk sector, accompanied by a four percentage-point fall to 8% in the numbers anticipating lower rates. In the container ship sector, there was a two percentage-point increase to 38% in the numbers expecting higher rates, and a three percentage-point fall, to 12%, in those anticipating lower rates.

One respondent said, “The shipping market is still characterised by high volatility and excess tonnage in most sectors, particularly bulk carriers and tankers, but there is cause for slight optimism.”

When asked to predict where per-barrel crude oil prices would be in 12 months’ time, 36% of respondents opted for the $60-$69 range, as opposed to 29% when the same question was posed in February 2017. The 19% of respondents who opted for the $50-$59 range was just half the 38% who did so last year, while 28% of respondents favoured the $70-$79 price range, as opposed to just 10% 12 months ago.

Richard Greiner, Moore Stephens partner, Shipping & Transport, says, “The volatile nature of the shipping industry dictates that optimism should be tempered with caution. But a four-year high in confidence must be welcomed as extremely good news.

“Shipping is more confident of making a major new investment over the next 12 months than at any time in almost four years, even though finance will probably be costlier to access in the year ahead. Net freight rate sentiment is positive in all main tonnage categories and, whilst slightly down in tankers, it increased both in the dry bulk and container ship trades.

“Familiar problems persist. Excess tonnage in many trades and insufficient demolition levels continue to perpetuate uncertainty, and freight rates are not yet at the levels required to turn promise into reality. In the wider world, the impact on shipping of continuing political unrest in the Middle East, the US President’s proposal to impose tariffs on US steel imports, and the response of other countries to this, remains to be seen. All of this serves to underline how vulnerable shipping is to geopolitical influences. But the industry must take heart from its proven durability. Confidence breeds confidence, and confidence breeds success.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 614 offices of independent member firms in 112 countries, employing 30,168 people and generating revenues in 2017 of $2.9 billion. www.moorestephens.co.uk/shipping-transport


For more information:
Richard Greiner
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
richard.greiner@moorestephens.com

Shipping confidence continues to edge upwards

Shipping confidence reached its highest rating in the past three years in the three months to end-August 2017, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens.

The average confidence level expressed by respondents to the survey was up slightly from the 6.1 out of 10.0 recorded in the previous survey in May 2017 to a three-year high of 6.2. The improved rating was attributable mainly to increased confidence on the part of owners, up from 6.1 to 6.5. Confidence levels on the part of brokers, meanwhile, fell from 6.4 to 6.3, while managers and charterers recorded more substantial drops – from 6.2 to 5.8 and from 6.4 to 4.7 respectively, the lowest levels in both cases since May 2016. The survey was launched in May 2008 with an overall confidence rating of 6.8.

Confidence levels were significantly up in Asia from 5.6 to 6.4, their highest level since May 2014. Confidence was also up in Europe, from 6.2 to 6.3, but down in North America, from 6.4 to 5.8.

Despite familiar concerns about excess tonnage capacity in many trades and continuing uncertainty over Brexit, several respondents saw reasons for optimism over the coming 12 months, not least as a result of what one described as “some green shoots of a relatively broad-based rebound in economic activity.” This helped maintain, at a three-year high, expectations of major investments being made over the next 12 months. Concern, however, persisted over political instability, the incipient cost of increased legislation, and the probable entry into the market of low-cost newbuildings.

One respondent said: “The future of the maritime industry will certainly be interesting, but will it also be enjoyable?”

The likelihood of respondents making a major investment or significant development over the next 12 months was unchanged from the previous survey at 5.4 out of a maximum possible score of 10.0. This represents the highest level achieved since August 2014, and this despite a slight fall this time (from 5.9 to 5.8) in the expectations of owners, and a much larger one (from 6.3 to 4.0) by charterers. The expectations of respondents in Asia were up, from 5.1 to 5.9, but down in Europe, from 5.4 to 5.2.

As was the case in the May 2017 survey, 50% of respondents expected finance costs to increase over the coming year. Owners’ expectations were unchanged at 48%, but both managers and charterers (where the figures were up from 57% to 62% and from 57% to 67%, respectively) were anticipating dearer finance. Brokers were alone among the main categories of respondent in recording a fall (from 63% to 42%) in the numbers expecting finance costs to go down.

Demand trends, cited by 27% of respondents, continued to be the factor expected to influence performance most significantly over the next 12 months, followed by competition (17%) and tonnage supply (15%), the latter displacing finance costs in third place. One respondent said: “Confidence is impaired by the inexperience of investment houses resulting in over-liquidity in the market, which feels that it has to spend just for the sake of it – a ‘greed-eats-brain’ mentality.”

The number of respondents expecting higher rates over the next 12 months in the tanker market was up on the previous survey, from 32% to 45%, while there was a 2% fall, to 14%, in those anticipating lower tanker rates. Meanwhile, although there was a two percentage-point fall, to 56%, in the numbers anticipating higher rates in the dry bulk sector, this was still the second-highest figure in three-and-a-half years. In the container ship sector, the numbers expecting higher rates dropped by six percentage points to 40%, while there was a five percent increase, to 17%, in those anticipating lower container ship rates.

Net sentiment was positive in all the main tonnage categories, and up in the tanker market from +16 in May 2017 to +31 this time. There were meanwhile small declines in net sentiment in the dry bulk and container ship trades, from +50 to +49 and from +34 to +23 respectively.

In a stand-alone question, respondents were asked to rank in order of priority what they considered to be the most significant new sources of finance for shipping over the next 12 months. Bank finance emerged as the first choice of 27% of respondents, followed by private equity (18%). Lease finance (14%) featured in third place, one percentage point ahead of shareholder funds. One respondent said: “Banks are being a lot tougher with owners, and it is good to see the demise of the CV and KG systems which generally did little to help the long-term viability of the industry.” Another observed: “For good owners, there is still capital available. But the worry is for the second and third-rung owners.”

Richard Greiner, Moore Stephens Partner, Shipping & Transports, says: “Another three months, and another rise in confidence in the shipping industry, albeit a small one. Confidence has been increasing steadily over the past 15 months, and industry players are more confident of making a major investment over the coming year than they have been at any time in the past three years. Moreover, net sentiment in all three main tonnage categories is positive, having almost doubled in the tanker sector over the past quarter.

“This welcome boost in confidence comes at a difficult time for the industry, beset by overtonnaging in many trades, the current and impending cost of regulatory compliance, and more widely by geo-political pressures. Clearly, shipping still has a lot to offer existing and new investors alike, both traditional and external.

“To some extent, success in the shipping industry is a question of being in the right place at the right time. But there is a lot of skill, knowledge and experience involved, too. It is good to see that confidence is still on the increase. They do say that it’s the hope that kills you but, in truth, the lack of it is likely to be far more damaging.”

To download a copy of the survey report please visit the Moore Stephens website:
https://www.moorestephens.co.uk/news-views/september-2017/shipping-confidence-continues-to-edge-upwards

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 626 offices of independent member firms in 108 countries, employing 27,997 people and generating revenues in 2016 of $2.7 billion. www.moorestephens.co.uk


For more information:
Richard Greiner
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
richard.greiner@moorestephens.com

Young professionals say London shipping must be adaptable and competitive

A new survey by The Shipping Professional Network in London (SPNL) has found that London must adapt to a fast-changing environment and improve its competitive edge in order to remain a relevant global maritime centre. Respondents to the survey also identified access to the single market and freedom of movement as key negotiating issues for shipping in the UK’s exit from the European Union.

The survey, organised in conjunction with international accountant and shipping adviser Moore Stephens, canvassed the opinions of young professionals working primarily in the shipowning, shipbroking, shipmanagement, chartering, banking and ship finance, advisory and associated industries in London. Respondents were asked for their views of the current state of the market, and how they believed it would perform over the next 12 months. They were also asked to identify the key challenges facing London as a maritime centre, and which aspects of the Brexit negotiations they considered to be most important for the preservation and continued development of London as a centre of global maritime commerce.

Respondents recorded an overall confidence level of 6.1, out of a maximum possible score of 10.0, in the markets in which they operate. This compares with the rating of 6.2 recorded when the survey was run previously, in September 2015.

On a scale of 1 to 10, respondents expressed an overall expectation of 5.8 when asked to gauge the likelihood of their business making a major investment or significant development over the next 12 months. This was unchanged from two years ago.

Competition, demand trends, and the cost and availability of finance were identified by respondents as the three leading factors most likely to affect their business performance over the next 12 months. 55% of respondents expected finance costs to increase over the coming year, compared to the 48% who thought likewise in 2015.

Respondents were also asked for their opinion of likely rate movements in the tanker, dry bulk, container ship and offshore markets over the course of the next year. 31% overall thought that tanker rates were likely to increase, as against 35% in the 2015 survey. In the dry bulk sector, 60% of respondents expected rates to increase, compared to the 35% recorded in 2015. Meanwhile, 42% of respondents expected rates to rise during the next 12 months in the container ship market, compared to 29% in 2015, and 31% expected rates to rise in the offshore maritime market.

Respondents were provided with a list of key challenges facing London in order for it to remain a relevant global maritime centre, and asked to choose the three options which they considered to be most important, in order of priority. ‘Competitiveness’ (unchanged from the previous SPNL survey in 2015) and ‘Ability to adapt to a fast-changing environment’ (up from 17% on the 2015 figure) were each identified by 23% of respondents. ‘Taxation’ (unchanged at 18 %) was in third place.

The number of respondents who identified education as a key challenge was down from 11% to 9%, the same number who expressed concern about the likelihood of there being insufficient numbers of professionals and shipowners operating in London.

On the specific question of Brexit, 21% of respondents identified access to the single market as the most important issue in negotiations for the UK’s exit from the EU. Freedom of movement (18%) featured in second place, followed by taxation / VAT / customs duties (15%) and regulatory issues (10%). Other factors cited by respondents included the legal framework (9%), passporting rights (8%), political sanctions and competition law (both 7%) and dispute resolution (6%).

Claudio Chistè, Chairman of SPNL, says: “The past two years have seen a continuation of the extremely difficult conditions which have plagued global economies since the beginning of the financial downturn in 2008. So it is not surprising that the level of confidence expressed by young shipping professionals working in the London market has declined, albeit very slightly, over the past two years.

“At a time of great uncertainty and change in many parts of the world, every major decision in shipping has to be weighed in the political and environmental scales, as well as the economic ones. And every decision should be made in the knowledge that, in many trades, there are too many ships operating at below-break-even rates, with the inevitable result that not everybody engaged in those trades is going to make money.

“Other, more recent issues may seem less pressing by comparison, but they are assuming increasing importance. Cyber-crime, for example, was barely considered as a significant threat to the industry two years ago. Now it is very near the top of the list in the minds of many. The next two years will also be highly instructive when it comes to footing the bill for compliance with the Ballast Water Management Convention.

“With these new problems, it is just as well that the new generation of shipping professionals continues to expand, bringing with it an approach which is fresh yet still informed by the older generation of professionals which has seen the shipping industry through many years of cyclical promise and disappointment. It is encouraging that talented young professionals are still attracted to the industry. This is just as it should be because, despite the problems, the net sentiment gleaned from our survey in terms of the prospects for rate improvements over the next 12 months is positive in the three main tonnage categories. Moreover, respondents to our survey rated the prospect of their business making a major investment over the next 12 months at 5.8 out of a possible 10.0.

“Today’s shipping professionals have to deal with Brexit and the massive potential implications for their future. SPNL members were divided in their views about whether Brexit would be good or bad for London as a maritime centre. Similarly, there was a divergence of opinion as to how best London can confront the issues it faces in terms of competition from other global shipping centres.

“It is not only about cost. It is also about service, flexibility, experience and tradition. London needs its cadre of young maritime professionals, and over time those young professionals will become the older generation of London-based expertise and experience. The next generation of professionals in London needs to rise to the new challenges as previous generations have done over the centuries.”

The Shipping Professional Network in London (SPNL) was founded in 2007 as a meeting place for young shipping professionals in London. Its vision is to promote and enhance London as a maritime financial centre, and to be the 'voice' of young shipping professionals in London by engaging with the broader shipping community.


Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as one of the leading shipping, offshore maritime and transport & logistics advisers. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 626 offices of independent member firms in 108 countries, employing 27,997 people and generating revenues in 2016 of $2.7 billion. www.moorestephens.co.uk


For more information:
Claudio Chistè
Chairman of SPNL
E: info@shippingnetwork.co.uk
W: www.spnl.co.uk

Moore Stephens says shipping must beware exposure to changing risk landscape

The third annual Shipping Risk Survey from international accountant and shipping adviser Moore Stephens confirms that the effective management of risk within the industry has improved slightly over the past 12 months. But shipping still needs to up its game in terms of managing its exposure to risk, which is increasing and changing in nature, not least in terms of the threat posed by cyber security.

Respondents to the survey rated the extent to which enterprise and business risk management is contributing to the success of their organisation at an average 6.8 out of a possible score of 10.0, compared to 6.6 last time. Charterers returned the highest rating (8.8) in this regard, followed by owners (6.9) and ship managers (6.8). Brokers returned the lowest rating at 6.3. Geographically, Europe (7.0) was ahead of Asia (6.6), but it was the Middle East which returned the highest figure, at 7.8.

Overall, respondents rated the extent to which enterprise and business risk was being managed effectively by their organisations at 7.1 out of 10.0, up from the rating of 7.0 recorded last time and indeed in the inaugural survey in August 2015. Charterers (8.8) expressed the highest level of confidence in this regard, followed by owners (7.3) and managers (6.9). In the previous survey, charterers recorded the lowest rating (6.5) of the main respondent types.

Demand trends were deemed by the greatest number of respondents to pose the highest level of risk, closely followed by competition and the cost and availability of finance. Demand trends were thought to pose the highest level of risk for owners, charterers and brokers, while for managers it was competition that topped the list.

Geographically, demand trends were the number one concern in Europe, Asia and the Middle East, while respondents in Latin America and North America identified competition as posing the highest level of risk.

Respondents to the survey felt that the level of risk posed by most of the factors which impacted their business would remain largely unchanged over the next 12 months, with the exception of ballast water management legislation, cyber security, geopolitics, operating costs and other changes to laws and regulations, which were all perceived to have the potential for increased risk.

Overall, 69% of respondents (unchanged from last time) felt that the senior managers in their organisations had a high degree of involvement in enterprise and business risk management. Meanwhile, 22% (up from 20% previously) said that senior management’s involvement was limited to “periodic interest if risks materialise”, while 7% (down from 10% last time) noted that senior management “acknowledged but had a limited involvement in” enterprise / risk management. Just 2% (marginally up on the 2016 figure) said that senior management had no involvement whatsoever.

Overall, 30% of respondents (compared to 35 % in the previous survey) confirmed that such risk was managed by means of discussion without formal documentation, while 45% noted that risk was documented by the use of spreadsheets or written reports, compared to 41% previously. Internally developed software was employed by 10% of respondents (17% last time) to manage and document risk, while 14% used third-party software, as opposed to just 5% at the time of the previous survey.

On a scale of 1.0 to 10.0, estimates of claims and provisions (up from 4.2 to 4.3) were deemed the factor most likely to result in a material misstatement in companies’ period-end financial statements. Next came impairment involving vessels in use (up from 4.0 to 4.1), changes to legislation (down from 4.2 to 4.1), and reliance on spreadsheets for financial reporting (up from 4.0 to 4.1). Loan covenant non-compliance, meanwhile, was up from 3.8 to 4.0.

A stand-alone survey question addressed only to publicly traded companies revealed that 80% of such organisations had a dedicated audit committee in place. Respondents in two-thirds of those companies, meanwhile, confirmed that their audit committees met on a quarterly basis to discuss risks, while 22% reported that such meetings were held annually.

Michael Simms, Moore Stephens partner, Shipping Industry Group, says: “Embedding proper and effective risk management controls into daily operating procedures is a huge challenge for companies in the shipping sector, where high risk levels are an accepted and fundamental part of the industry. This is particularly the case, as is now, when the industry is ultra-competitive and grappling with an imbalance in tonnage supply and demand, and when wider global economic conditions remain extremely tough.

“In such a scenario, it may be tempting for companies to take their eye off their exposure to risk in pursuit of retaining or securing new business. And although the survey suggests that is not the case, it also reveals that the standard of risk awareness and response capability in many shipping companies is below the required levels.

“The good news is that there is greater acknowledgement that sound enterprise and business risk management is contributing to the success of those shipping organisations which responded to our survey. More companies are now formally documenting the way in which such risk is managed, with a healthy level of involvement by senior management. Moreover, there has been a noticeable increase in the deployment of third-party software to manage exposure to risk.

“But the survey results show that there is still room for improvement. As the level of risk is not only increasing but also changing in nature, there is a need for companies engaged in the shipping industry to up their game in terms of implementing effective corporate governance systems, monitoring procedures and maintaining controls throughout their organisations.

“The factors identified by respondents to the survey as being most likely to result in a material misstatement in their accounts were unsurprising – particularly claims estimates and impairment. The same is true of factors posing an increased level of risk to business over the next 12 months, including operating costs, ballast water management legislation, and cyber security.

“There is nothing new about the challenge posed by operating costs, which are as old as shipping itself. Such costs may have fallen over the past four recorded years, but it is unlikely that this will continue, particularly given the need to meet increasingly onerous legislative and regulatory demands, and continually escalating crew costs. But the need to invest heavily in measures to preserve the environment, and to protect against the threat of cyber-attack, are more recent developments which change the risk landscape for the shipping industry.

“IMO recently approved an extension to the implementation date for the Ballast Water Management Convention, but it is a delay rather than a reprieve for owners and operators. Meeting the cost of compliance over the coming decade represents an enormous challenge.

“The threat to cyber security within the shipping industry, meanwhile, grows apace. Ship operation is becoming an increasingly digitalised business, calling for cyber risk management both on board and ashore. IT systems and onboard operational technology are increasingly being networked and connected to the internet, resulting in a heightened risk of unauthorised access to ships’ systems and networks.

“The effective management of risk is fundamental to both safety and commercial success in the shipping industry. The level of effective management of risk must continue to improve. The challenge for companies operating in the shipping sector is to balance risk awareness and risk management with the pursuit of commercial success in an industry which traditionally rewards success commensurate with the informed and acceptable taking of risk. Those who fail to meet this challenge may pay a heavy price in terms of performance, and even survival.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 626 offices of independent member firms in 108 countries, employing 27,997 people and generating revenues in 2016 of $2.7 billion. www.moorestephens.co.uk


For more information:
Michael Simms
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
michael.simms@moorestephens.com

Shipping confidence hits three-year high

Shipping confidence reached its equal highest rating in the past three years in the three months to end-May 2017, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens.

The average confidence level expressed by respondents to the survey was up to 6.1 out of 10.0 from the 5.6 recorded in the previous survey in February 2017. Increased confidence was recorded by all main categories of respondent to the survey, which launched in May 2008 with an overall confidence rating of 6.8.

In the case of brokers, the confidence rating rose from 4.6 to 6.4, while for owners the increase was from 5.6 to 6.1. Confidence on the part of charterers and managers, meanwhile, was up from 5.9 to 6.4, and from 6.0 to 6.2 respectively. Confidence levels were unchanged in Asia at 5.6, but up in Europe, from 5.5 to 6.2, and in North America, from 6.1 to 6.4.

A number of respondents expressed cautious optimism about the industry’s fortunes over the next 12 months, based largely on perceived increased levels of ship demolition and a rationalisation of over-ambitious newbuilding plans. This helped increase expectations of major investments being made over the next 12 months. Concern persisted, however, over political uncertainty, overtonnaging in certain trades, depressed oil prices and a potential dearth of quality seafarers.

One respondent said, “Shipping people are eternally optimistic, with one week of good news seeming to help them forget eight terrible years of hardship and financial loss.”

The likelihood of respondents making a major investment or significant development over the next 12 months was up from 4.9 out of 10.0 in the previous survey to 5.4, the highest level since August 2014. There was increased confidence on the part of all major respondents, in the case of charterers up to a level of 6.3 from 5.8 in February 2017. Owners and managers, meanwhile, each registered a confidence level of 5.9, up from 5.1 and 5.6 respectively last time. Confidence on the part of brokers was up from 3.4 to 4.4.

50% of respondents expected finance costs to increase over the coming year, compared to 54% in the previous survey. Owners’ expectations fell from 57% to 48%, while managers were also down, from 61% to 57%. More brokers and charterers, however, anticipated costlier finance – 63% of brokers (against 41% last time) and 57% of charterers (compared to 47% in February 2017). “The financial support needed to boost the markets is not yet at expected levels,” noted one respondent, “but we believe that the situation will improve in the coming months as demand increases.”

Demand trends, cited by 26% of respondents, continued to be the factor expected to influence performance most significantly over the next 12 months, followed by competition (22%) and finance costs (14%). According to one respondent, “Larger companies are targeting their smaller competitors in order to minimise competition and secure a stronger position in the market.”

The number of respondents expecting higher freight rates over the next 12 months was up on the previous survey in all three main tonnage categories. In the tanker market, 32% of respondents anticipated improved rates, as opposed to 25% last time, while the number anticipating lower tanker rates fell from 28% to 16%. Meanwhile, there was a 14 percentage-point rise, to 58%, in the numbers anticipating higher rates in the dry bulk sector, the highest figure for three years.

In the container ship sector, the numbers expecting higher rates rose from 31% to 46%, while there was a six percentage-point fall, to 12%, in those anticipating lower container ship rates. Net sentiment was up in the tanker market from -3 in February 2017 to +16 this time, while the increases in the dry bulk and container ship trades respectively were from +33 to +50 and from +13 to +34.

In a stand-alone question, respondents were asked to estimate the level they expected the Baltic Dry Index (BDI) to be at in 12 months’ time. More than half (52%) felt the BDI would reach a level of between 1000 and 1499, while a quarter (25%) put the likely figure at between 1500 and 1999. “Healthy volumes of cargo are being moved,” said one respondent, “but there are too many ships around.”

Richard Greiner, Moore Stephens Partner, Shipping & Transport, says, “The survey was launched in 2008, on the very cusp of one of the most protracted and severe global economic downturns, with a confidence rating of 6.8. In our latest survey, the figure stands at 6.1 which, given geopolitical, economic and industry developments, must be seen as a robust rating. Moreover, confidence today of making a major new investment is the highest it has been for almost three years. The positive sentiment on freight rates is welcome, although this must be weighed against the lows to which they have fallen and from which they must continue to recover.

“Even for an industry which is familiar with the volatile nature of international commerce, shipping’s ability to survive adversity is worthy of comment. Our latest survey found many of our respondents in watchful mode, mindful of the fact that there are still too many ships, but encouraged to believe that increased demolition and more pragmatism by industry stakeholders will help to redress this imbalance. Respondents also remain cognisant of the impact which geopolitical developments can have on shipping, and it will be instructive to see what effect all this will have on industry confidence in our next quarterly survey.”

The full survey report can be downloaded from the Moore Stephens website:
http://www.moorestephens.co.uk/news-views/june-2017/confidence-hits-three-year-high

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 626 offices of independent member firms in 108 countries, employing 27,997 people and generating revenues in 2016 of $2.7 billion. www.moorestephens.co.uk


For more information:
Richard Greiner
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
richard.greiner@moorestephens.com

Optimistic charterers help boost shipping confidence to 15-month high

Shipping confidence improved for the third successive quarter in the three months to end-November 2016, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens.

In November 2016, the average confidence level expressed by respondents was 5.6 out of 10.0, equalling the highest rating since August 2015. All main categories of respondent were more confident than in August 2016, when the overall rating was 5.4. Charterers’ confidence this time increased by 2.0 points, to 6.8, the highest figure in the life of the survey for such respondents. The confidence of owners was up from 5.3 to 5.4, of brokers from 4.5 to 5.6, and of managers from 6.0 to 6.4. The survey was launched in May 2008 with an overall confidence rating of 6.8.

Confidence was up in Asia, from 5.5 to 5.7, in Europe from 5.2 to 5.4, and in North America from 5.8 to 5.9.

A number of respondents felt that the bottom of the cycle had been reached and that the only way was up. Particular concern was expressed about overtonnaging, insufficient recycling, and the cost of regulatory compliance. One respondent noted, “The oversupply of tonnage will cease when the banks write down bad loans and force owners to sell for scrap,” while another said, “The weak or unlucky will fold or be gobbled up, while the strong or the lucky will grow and succeed.”

The likelihood of respondents making a major investment or significant development over the next 12 months was unchanged, at 4.9 out of 10.0. Charterers’ confidence in this regard was up from 5.0 to 6.4, equalling its highest figure since August 2013. Owners’ expectations were also up, from 4.8 to 5.0, but those of managers and brokers were down, from 5.3 to 5.2 and from 4.1 to 3.8 respectively. According to one respondent, “It is hard to see how major investment to meet environmental regulations can be justified in the current climate.”

The number of respondents expecting finance costs to increase over the coming year rose from 35% to 53%, the highest level for five years. Owners’ expectations in this regard rose from 31% to 58%, their highest level since May 2011. The figures for brokers and managers were also up, from 47% to 53% and from 30% to 52%, respectively. Charterers were alone in not anticipating any increase in finance costs. “Major investment will be required over the next few years to meet increasingly stringent environmental regulations,” said one respondent, “at a time when earnings are on the floor and bank finance is hard to come by.”

Competition is expected to influence performance most significantly over the next 12 months, just ahead of demand trends, followed by finance costs and tonnage supply. One respondent said, “If demand remains weak, we don’t anticipate any improvement in the shipping markets over the next five years, particularly for dry bulk cargoes.”

The number of respondents expecting higher rates in the tanker market over the next 12 months rose by ten percentage points to 33%, the highest figure since August 2015, while the number anticipating lower tanker rates fell from 37% to 24%. Meanwhile, there was a three percentage-point rise, to 41%, in the numbers anticipating higher rates in the dry bulk sector. In the container ship sector, the numbers expecting higher rates rose from 22% to 27%, but there was a five percentage-point increase, to 21%, in those anticipating lower rates. The net sentiment in the tanker markets was +9, while it was +31 in the dry bulk markets and +6 in the container ship trades.

In a stand-alone question, respondents were asked what they considered would be the most important source of funding for the installation of Ballast Water Management (BWM) systems by shipowners. Overall, on a weighted average basis, 21% of respondents felt that shipowner equity (shareholder funds) would provide the source of funding. Next came bank finance, at 19%, BWM system manufacturers (15%), shipyards (12%) and other non-bank finance (10%). One respondent said, “Financing BWM is almost impossible. Owners have no money for it.”

Richard Greiner, Moore Stephens Partner, Shipping & Transport, says, “This is the third successive increase in shipping confidence recorded by our survey. So despite overtonnaging, weak freight rates, declining demand, insufficient recycling, Brexit, Syria, Trump, despite everything, shipping is still looking up, rather than down. This is not to deny the reality of today’s difficult market, or the sluggish economic climate. But it does say much for the strength of shipping’s backbone and the quality of its mettle.

“Those who can point to a long history in shipping will be better placed to gauge the severity and longevity of the current downturn than those with a shorter pedigree in the industry. But both will need access to finance and to other resources in order to meet the challenges which lie ahead. Not the least of these is the ongoing regulatory environmental compliance programme, even if implementation of the BWM convention may be caveated with potential delay and amendment for a little while longer.

“Many of our respondents felt that things can only get better. They are probably right. But for that to happen, freight rates will have to go up. Perhaps it is safer to say for the moment that, if we want things to stay as they are, things will have to change.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 657 offices of independent member firms in 106 countries, employing 27,613 people and generating revenues in 2015 of $2.7 billion. www.moorestephens.co.uk.


For more information:
Richard Greiner
Moore Stephens LLP, London
Tel: +44 (0)20 7334 9191
richard.greiner@moorestephens.com

Moore Stephens reports second successive quarterly rise in shipping confidence

Shipping confidence, notably on the part of charterers and managers, improved for the second successive quarter in the three months to end-August 2016, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens.

In August 2016, the average confidence level expressed by respondents was 5.4 on a scale of 1 (low) to 10 (high). This is an improvement on the 5.1 recorded in May 2016, and the highest rating for the past nine months of the survey, which was launched in May 2008 with a confidence rating of 6.8.

Although confidence on the part of owners was down this time from 5.7 to 5.3, charterers (up from 4.0 to 4.8), managers (up from 5.1 to 6.0) and brokers (up from 4.3 to 4.5) were all more optimistic than in May 2016. Geographically, confidence was up in Asia, from 5.2 to 5.5, and in North America from 5.0 to 5.8, with sentiment in Europe unchanged at 5.2.

Overcapacity was the dominant theme of comments from respondents to the survey. “Scrapping is still not sufficient to cope with newbuilding deliveries and the general supply-side overhang. Every new order will prolong the crisis,” said one, while another noted, “If we all stay away from ordering relatively cheap tonnage today, supply and demand will soon recover.”

Conditions in the dry bulk market also occupied the thoughts of large numbers of respondents. “Implementation of the Ballast Water Management Convention will most likely solve overcapacity,” said one, “but it will also cause a bloodbath among owners.” Another remarked, “Growth is non-existent, so there is no hope there,” while another still simply said, “We have lost confidence in the dry bulk market.” Other respondents were slightly more optimistic, with one noting, “We expect the dry bulk markets to improve significantly during the course of 2017.”

Concerns about the global economy were uppermost in the minds of a number of respondents, one of whom neatly encapsulated a number of the main issues currently impacting the shipping industry by noting, “Brexit, Trump, supply overhang, consolidation, demolition, bankruptcies, and the low risk appetite of banks for shipping and shipping stocks seem to be the main topics to follow for the next 12 months or so. We would be pleasantly surprised if this were to change.”

The likelihood of respondents making a major investment or significant development over the next 12 months was unchanged on the previous survey, with a rating of 4.9 on a scale of 1 to 10. The confidence of charterers in this respect was up significantly, from 4.1 to 5.0, while brokers also recorded a small increase, from 3.5 to 4.1. Owners and managers, however, were less confident in this regard than they were three months ago, dropping from 5.7 to 4.8 and from 5.4 to 5.3 respectively. One respondent said, “Massive investment, mainly from inexperienced funds and private entrepreneurs, has resulted in an oversupply of funding in some trades.”

The number of respondents who expected finance costs to increase over the next 12 months was down by six percentage points, to 35%. There was a noticeable fall in the numbers of owners (down by six percentage points to 31%), managers (down by 19 percentage points to 30%) and charterers (down by two percentage points to 27%) anticipating higher finance costs. One respondent said, “Shipping banks need to be more realistic about pricing if they want to sell debt as a means of reducing their exposure to the sector.”

Demand trends, competition and tonnage supply featured again as the top three factors cited by respondents as those likely to influence performance most significantly over the coming 12. Demand trends, which were up by two percentage points to 26%, remained in first place, with competition (down by three percentage points to 20%) in second. Tonnage supply, unchanged at 16%, occupied joint-third spot with finance costs, which were up by one percentage point. Operating costs, up by one percentage point to 10%, featured in fifth place, ahead of fuel costs (5%) and regulation (4%). One respondent said, “We have read many, many times that we have reached the bottom of the cycle, only for a lower offer to appear in the market a few hours later.”

The number of respondents expecting higher charter rates in the tanker market over the next 12 months was unchanged at 23%, while the numbers anticipating lower tanker rates rose by three percentage points to 37%. Meanwhile, there was a five percentage-point drop, from 43% down to 38% in the numbers of like mind in the dry bulk trades, and a one percentage point increase, to 12%, in the numbers anticipating lower dry bulk rates. In the container ship sector, the number of respondents expecting higher rates was up by one percentage point to 22%, while there was a fall, from 20% to 16%, in the numbers anticipating lower rates.

The net sentiment in the tanker markets was -14, as opposed to +26 in the dry bulk markets and +6 in the container ship trades.

One respondent said, “Too many dry cargo ships have been built, and we are not confident that the freight market will improve sufficiently to justify investment, especially from people who have no previous experience of shipping.” Another remarked, “A whole class of container ships is essentially obsolete following the opening of the widened Panama Canal.”

Respondents were asked a stand-alone question about the perceived barriers to women playing a greater role in the shipping industry. Overall, 31% of respondents placed ‘workplace attitude or corporate culture’ in the top five factors in this regard. ‘Travel implications in day-to-day roles’, meanwhile, was a top five factor for 21% of respondents, while ‘lack of career progression’ was placed third, at 19%. One respondent said, “There are no barriers. It is up to the individual to pursue her career with determination and strength of character.” Another, however, complained that, “The culture in the industry is male chauvinist.”

Richard Greiner, Moore Stephens Partner, Shipping & Transport, says, “Given the challenges currently facing the industry, the continuing uncertainty surrounding the worldwide economy, and the ongoing level of global geopolitical instability, it is encouraging to see an increase in shipping confidence for the second successive quarter. Confidence is now at its highest level for nine months, which says much for the resilience of the shipping industry.

“Concern persists about too much tonnage and not enough recycling. Restoring the correct balance to tonnage supply and demand is a long-term undertaking, the complexities and diverse nature of which are arguably well captured by the respondent who noted, ‘We have divided interests. For our customers, we hope that nobody orders any vessels for the next 12 months. For us, we hope that people do, because we need newbuildings’.”

“Given the pace of technological development, the continuing imperative to improve the industry’s environmental footprint, and the exigencies of escalating regulation, the industry will always need newbuildings. The trick is to make sure that there is room – and work – for them in a market which encourages responsible competition and allows a sensible margin for profit. That requires, among other things, an increase in ship demolition levels which, given the recent decline in dry bulk recycling and the perceived impossibility of recycling enough container ships, seems unlikely.

“The maintenance of sensible levels of competition is also a prerequisite for a healthy and profitable shipping industry. Since the survey was launched in 2008, respondents have consistently identified competition as one of the main factors likely to influence their performance most significantly. All trade sectors thrive on responsible competition, which works as an incentive to progress and profitability. But irresponsible competition can have the opposite effect, witness the respondent who referred to ‘those who focus on how to trick, treat and corrupt under the broad term ‘competition’.”

“Perversely, the collapse of Hanjin Shipping Co., which occurred after our survey was concluded, may have a positive effect on overtonnaging, although nobody would have been looking for such an extreme solution. Hanjin’s collapse has sent shockwaves through the industry which will continue to reverberate for many months to come. It may also give pause for thought to those who see the future of container shipping as ever bigger and more diverse alliances.

“Equally perverse is the very real possibility that final ratification of the Ballast Water Management Convention may have a positive effect on overcapacity. It might not be correct to say that this development has sent shockwaves through the shipping sector, because the industry has known for some time that it has been coming, and has been pondering how best to meet its requirements and how to fund the considerable cost of so doing. It matters not whether it was the ratification by Finland which finished the uncertainty about implementation, or whether it was Panama’s huge fleet which activated the green light. A shock is no less shocking for being expected, and the fact is that the convention will enter into force in September 2017. It will be instructive to see how shipping deals with the issue, and from what level of preparedness, the extent of which will become clearer over the coming months.

“A stand-alone question in our survey asked respondents to name the biggest barriers to women playing a greater role in today’s shipping industry. More than 65% identified ‘workplace or corporate culture’ as the number one barrier. James Brown famously sang, ‘This is a Man’s World’, although not everybody remembers that the self-styled Godfather of Soul went on to say, “but it wouldn’t be nothing without a woman or a girl’. It is beyond any reasonable measure of doubt that shipping will need the efforts of every man and woman working within the industry today to tackle both current challenges and those which lie in wait.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 657 offices of independent member firms in 106 countries, employing 27,613 people and generating revenues in 2015 of $2.7 billion. www.moorestephens.co.uk

For more information:
Richard Greiner
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
richard.greiner@moorestephens.com

Moore Stephens says shipping must improve risk management

Not enough companies in the shipping industry are following joined-up risk management procedures, according to international accountant and shipping adviser Moore Stephens.

The second annual Moore Stephens Shipping Risk Survey revealed a fall, when compared to last year, in the overall level of satisfaction on the part of respondents that sound risk management had contributed to the success of their organisations. The involvement of senior management in managing risk at the highest level also declined against last year.

Respondents to the survey rated the extent to which enterprise and business risk management is contributing to the success of their organisation at an average 6.6, on a scale of 1 (low) to 10 (high), compared to 6.9 last time. Under a quarter of respondents (23%) returned a rating of 8.0, compared to 26% last time, while 70% put the figure at more than 5.0 out of 10.0, as opposed to 74% in 2015.

Overall, respondents rated the extent to which enterprise and business risk was being managed effectively by their organisations at 7.0 out of 10.0 (unchanged from last time). One respondent noted, “Financially well-managed shipping companies need only fear another collapse in rates and values,” but another said, “We misjudge the market and don’t take the right course of action to protect profits.”

Demand trends were deemed by the greatest number of respondents to pose the highest level of risk to their organisation, closely followed by competition, with the cost and availability of finance in third place. One respondent said, “Market reports are uncertain. Company-specific risk matrices need to be drawn up on the basis of experience, fundamentals and hindsight following evaluation of available market analysis reports which are, however, uncertain.”

Respondents to the survey felt that the level of risk posed by most of the factors which impacted their business would remain largely unchanged over the next 12 months, with the exception of tonnage supply and competition, which were perceived to have the potential for increased risk. No-one overall expected less risk in any of the categories.

Overall, 69% of respondents felt that the senior managers in their organisations had a high degree of involvement in enterprise and business risk management, as opposed to 72% in the previous survey. Meanwhile, 20% said senior management’s involvement was limited to “periodic interest if risks materialise” (up from 18% last time), while almost 10% of respondents (up from 8%) said that senior management “acknowledged but had a limited involvement in” enterprise/risk management. Just over 1% said that senior management had no involvement whatsoever.

One respondent said, “The problems are internal rather than external. We are not versatile enough. Emerging IT is not a risk in itself, but we are too slow to adapt to changing needs and competition.” Elsewhere it was noted, “Embedded derivatives are not being disclosed. For example, bunker escalation clauses in contracts of affreightment are de facto derivatives, but I have never seen them disclosed separately.”

Overall, 35% of respondents (compared to 37% in the previous survey) confirmed that risk was managed by means of discussion without formal documentation, while 41% noted that risk was documented by the use of spreadsheets or written reports, compared to 42% previously. Internally developed software was employed by 17% of respondents (13% last time) to manage and document risk, as opposed to the 5% who used third-party software.

On a scale of 1.0 to 10.0, estimates of claims and provisions, and changes to legislation (both 4.2) were deemed the most likely factors to result in a material mis-statement in companies’ period-end financial statements. Impairment involving vessels in use (4.0) featured in third place in this regard.

Michael Simms, Moore Stephens Partner, Shipping & Transport, says, “The survey revealed that risk is being managed effectively within a high percentage of those organisations which participated in the survey. It is nonetheless disappointing to find that confidence in the level to which enterprise and business risk management contributes to the success of shipping organisations has fallen slightly in the past 12 months. So, too, has high-level involvement by senior managers.

“Shipping is a risky business, one in which an unwillingness to take any risk whatsoever sometimes represents the biggest risk of all. But that does not mean that the industry can afford to ignore or underestimate risk. It must achieve the right balance between risk and reward, and especially so when reward levels are low, as they are at present. The rewards may vary, but the risk will not go away.

“The shipping industry’s level of vulnerability is reflected in the diverse nature of the threats identified by respondents to the survey. Few other industries could claim to be exposed to risks arising from economic uncertainty, mis-diagnosed analyses, renegotiation of existing contracts, lack of financing, uncertainty over asset valuations, defaults on loan repayments, political sanctions, monopolistic policies, regulatory changes, falling crude oil prices, customer insolvency, fears over the Chinese economy, uncertainty in Europe (and not just as a result of Brexit), and plain old supply and demand.

“Since the start of the worldwide economic downturn in 2008, shipping has coped, to varying degrees of success, with what might be regarded as the ‘traditional’ risks associated with operating in the industry. But there is also a growing threat from extraneous factors such as cyber-security and the increasing level of IT-related risk. The industry’s risk profile is changing, and with that the industry itself must change its approach to identifying risk. For some, outsourcing is a solution. However, managing the risk of doing this must not be overlooked. If the risk is not recognised, it cannot be controlled.

“The key to identifying and mitigating any type of risk lies in the application of sound, firm-wide governance control systems. Simply paying lip-service to corporate governance will not do. The tone needs to be set by senior management, leading from the front.

“A rating of 7.0 out of 10.0 in respect of the level of effective management of risk at companies which participated in the survey is not too discouraging. But it needs to be higher, as does the figure of just over 40% of companies which formally document the management of risk. Not enough companies are pursuing joined-up risk management procedures. Ultimately, the price to pay for inefficient management procedures, and the failure to monitor risk in a systematic and documented fashion, could be corporate failure.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 657 offices of independent member firms in 106 countries, employing 27,613 people and generating revenues in 2015 of $2.7 billion. www.moorestephens.co.uk

For more information:
Michael Simms
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
michael.simms@moorestephens.com