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


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Moore Stephens reports small rise in shipping confidence

Overall confidence levels in the shipping industry rose slightly in the three months to May 2016, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens.

In May 2016, the average confidence level expressed by respondents in the markets in which they operate was 5.1 on a scale of 1 (low) to 10 (high). This is a slight improvement on the 5.0 recorded in February 2016, but is still the second lowest rating in the life of the survey, which was launched in May 2008 with a confidence rating of 6.8.
Confidence on the part of owners was markedly up this time, from 4.8 to 5.7, while charterers were also slightly more optimistic than in February, their rating inching up from 3.9 to 4.0. Confidence among managers and brokers, however, was down, from 5.5 to 5.1 and from 5.1 to 4.3 respectively.

Geographically, albeit from very low levels last time, confidence was up in Asia, from 4.4 to 5.2, in Europe from 5.1 to 5.2, and in North America from 4.7 to 5.0.
Economic and geopolitical uncertainty was uppermost in the thoughts of many respondents. “Overall world economic growth is still not moving concertedly in a positive direction,” said one, “so that we have what might best be described as a patchy global economic recovery.” Another emphasised, “Unless there is a drastic change in geopolitical events, shipping markets will remain in their present condition for another 12 months.” Elsewhere it was noted, “World economies are in transition, and we have to adapt to a period when money is not so easy to come by.”

The availability of money for shipping projects, meanwhile, was another recurring theme in respondents’ comments. “Finance is way too cheap,” said one, “and has caused a massive over-supply of tonnage.” Not everybody agreed, however. One respondent complained, “Demands for early loan repayments have been a huge blow to owners’ survival plans,” while another said, “Unstable income due to the collapse in the markets has led financiers to lose confidence in owners.”
Once again, a surfeit of tonnage and a paucity of scrapping were referenced by a number of respondents. One noted, “Far too many newbuildings in the ultra-to-VLOC size range will be hitting the market in the next 12-to-18 months,” while elsewhere it was noted that what is needed is, “strong scrapping, fewer dry newbuildings, stiffer regulations, better and more uniform control.”

Another respondent said, “Over-supply of tonnage is still the key influencing factor in the market, and there will be no real change until bold decisions are made in respect of scrapping tonnage which is less than twenty years old.”
It was not all pessimism, however. One respondent insisted, “There are lots of opportunities in the market for smart operators. Those who merely follow the lead of others will, as always, suffer, because they do not understand the market.” More than one respondent, meanwhile, emphasised that, in many cases, there is simply no alternative to shipping. “Shipping is the major means of transporting goods in the world, and shipping lanes will continue to increase,” said one. “There is still a market out there,” said another, “but we can’t all be winners, and there is no longer any room for mediocre performance.”

The likelihood of respondents making a major investment or significant development over the next 12 months was up marginally on the previous survey, on a scale of 1 to 10, to 4.9 from 4.8 last time, which equalled the figure recorded in February 2009 as the lowest in the life of the survey to date. The confidence of owners in this respect was up significantly, from 4.9 to 5.7, while managers also recorded a small increase, from 5.3 to 5.4. Charterers and brokers, however, were less confident in this regard than they were three months ago, dropping from 5.1 to 4.1 and from 4.4 to 3.5 respectively.

The number of respondents who expected finance costs to increase over the next 12 months was down by one percentage point on last time, to 41 %. The numbers of owners (37 %), managers (49%) and brokers (44 %) anticipating dearer finance were up by one, 6 and 8 percentage points respectively, but charterers’ expectations in this regard were down by 27 percentage points to just 29%.

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 months. Demand trends, which were actually down by two percentage points to 24 %, remained in first place, with competition (up 2 percentage points to 23 %) in second place. Tonnage supply, up one percentage point to 16 %, occupied third place, one percentage point ahead of finance costs. Operating costs, down by 3 percentage points to 9 %, featured in fifth place, ahead of regulation (5 %) and fuel costs (4 %).

Though overall sentiment in the tanker market was still negative, there was a 5 percentage-point increase (to 23 %) in the number of respondents expecting higher freight rates over the next 12 months, and a 3 percentage-point increase (to 43 %) in the numbers of like mind in the dry bulk trades. But there was a 6 percentage-point fall (to 21 %) in the number of respondents anticipating higher rates in the container ship market. The net sentiment in the tanker market was -11, but +32 and +1 in the dry bulk and container ship sectors respectively.

Respondents were asked a stand-alone question concerning whether or not the UK should leave the European Union. Overall, 77% of respondents felt the UK should remain in the EU. But whereas 79% of owners and 75% of managers were of that view, in the case of charterers and brokers it was significantly lower – 57% and 38% respectively. Twenty percent of respondents felt that an EU exit would have some negative impact on their business, but 64% said it would have no impact at all. So far as UK respondents alone were concerned, 59% thought the UK should remain in the European Union, while 49% thought that leaving the EU would have no impact at all on their business.

One respondent said, “There is likely to be no major impact if the UK votes to leave the EU, but there could be a period of uncertainty in connection with rules and regulations.” Another, however, pointed out, “Shipping is a very complex international business. Having an extra layer of bureaucrats in Brussels has a negative effect on economic wellbeing under just about any form of government.”

Richard Greiner, Moore Stephens partner, Shipping Industry Group, says, “If there is one thing certain in the current shipping market, it is the level of uncertainty which is pervading all sectors at the moment. Over the three months covered by our latest survey, that uncertainty has embraced a variety of industry-specific issues, as well as geopolitical factors ranging from the UK referendum on EU membership to the comparative slowdown in the Chinese economy. Against such a background, any increase in shipping confidence – however small – is welcome.

“Many of our respondents continue to express serious misgivings about the extent of overtonnaging, and about the inadequacy of current levels of demolition activity. One informed estimate recently put world shipbuilding overcapacity at 50%. Other estimates, meanwhile, put first-quarter 2016 demolition levels at roughly 50% more than in the same period the previous year. Where ship recycling is concerned, however, 50% of not very much is not enough. As one respondent to our survey noted, ‘We have still to see 15-year-old ships being sent to scrapyards in any meaningful manner.’

“There is meanwhile little cheer in the freight markets. In the dry bulk sector, rates are described as ‘dire’, while it is reported that the container ship market is seeing some of the lowest freight rates in its history. The tanker sector is faring better by comparison, but its fortunes over the coming 12 months will be closely linked to what happens to oil prices. The Baltic Dry Index, although recovering from its recent all-time low, is languishing by comparison with its ‘salad days’, and may continue to do so for some time absent a significant upturn in the Chinese economy.

“It is clear that shipping is in for a hard 12 months. The problems cited by the respondents to our survey are familiar in nature and, in many cases, growing in the extent of their severity. The fact that only 5% of respondents considered regulation to be one of the main factors likely to influence their performance over the coming 12 months is either an indication of the severity and immediacy of other factors, or else an acceptance that there is still time to save up for what is needed to comply with new regulation. The Ballast Water Management Convention now stands on the cusp of ratification at a largely unquantifiable cost to operators.

“The mood of our respondents was not universally downbeat, however. A number continued to emphasise the fact that other methods of transportation are invariably not a viable alternative to shipping, while others stressed that innovative operators will always find a way to succeed, including accessing the finance needed to do so. And while some complained about the difficulty of securing or maintaining finance, 45% of owners rated the possibility of making a new investment over the coming 12 months at 7 out of 10 or higher.

“In general terms, the continuing advent of new technology and the relentless march of regulation are intended to make shipping safer, cleaner, more accountable and more competitive - an environment that would be a natural fit for well-founded operators with sound business plans and long-term aspirations. But the cost of achieving those aims is high, and ultimately much will depend on the industry’s ability to rationalise capacity and thereby push up freight rates.”
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