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.

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

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

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

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

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

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

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