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

Shipping confidence holds steady despite industry and political pressures

Shipping confidence held steady in the three months to end-February 2017, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens.

In February 2017, the average confidence level expressed by respondents was 5.6 out of 10.0, unchanged from the previous survey in November 2016 and equal to the highest rating since August 2015. Owners were the only main category to show an improved level of confidence, up from 5.4 to 5.6. Confidence on the part of charterers was down from its all-time survey high of 6.8 to 5.9, while that of managers fell from 6.4 to 6.0. Confidence levels in the broking sector, meanwhile, dropped from 5.6 to 4.6. The survey launched in May 2008 with an overall confidence rating of 6.8.

Confidence was up in Europe and North America, from 5.4 to 5.5 and 5.9 to 6.1 respectively, but down from 5.7 to 5.6 in Asia.

Respondents generally felt that competition was running at very high levels, while other familiar concerns included overtonnaging and geopolitical uncertainty. Most respondents saw 2017 as a year of retrenchment rather than improvement. One said, “If owners can maintain their discipline and resist the blandishments of shipyards desperate for business, there is hope that 2018 will see a return of market equilibrium, in which continued scrapping remains a key element.” Another, meanwhile, noted, “The current state of most shipping markets, coupled with the weakness of banks, means that conditions should be more attractive for alternative lenders.”

The likelihood of respondents making a major investment or significant development over the next 12 months was unchanged for the fourth successive quarter, at 4.9 out of 10.0. Managers’ expectations were up from 5.2 to 5.6, the highest level since August 2015. Owners’ expectations were also up, from 5.0 to 5.1, but those of charterers and brokers were down, from 6.4 to 5.8 and 3.8 to 3.4 respectively.

The number of respondents expecting finance costs to increase over the coming year rose by one percentage point to 54%, the highest level since November 2011. Owners’ expectations of increases fell from 58% to 57%, while the figures for brokers were also down, from 53% to 41%. Managers were of a different mind, with 61% expecting increases as opposed to 52% in November 2016.

Demand trends overtook competition as the factor expected to influence performance most significantly over the next 12 months, followed by finance costs and tonnage supply. “Competition is so intense at the moment,” said one respondent: “that you either accept what is offered or a competitor will take the cargo.”

The number of respondents expecting higher rates in the tanker market over the next 12 months fell by eight percentage points to 25%, while the number anticipating lower tanker rates rose from 24% to 28%. Meanwhile, there was a three-percentage-point rise, to 44%, in the numbers anticipating higher rates in the dry bulk sector, although one respondent remarked, “The dry bulk freight market will continue to be tough, with returns not much above break-even”. In the container ship sector, the numbers expecting higher rates rose from 27% to 31%, while there was a three-percentage-point fall, to 18%, in those anticipating lower container ship rates. The net sentiment in the tanker markets was -3 (compared to +9 in November 2016), while it was +33 (up from +31 last time) in the dry bulk markets and +13 (compared to +6 in the previous survey) in the container ship trades.

In a stand-alone question, respondents were asked to identify the price range they expected crude oil (per-barrel) to be in 12 months’ time. The most popular estimate was the $50-$59 range, identified by 38% of respondents, as opposed to 19% in the February 2016 survey. Meanwhile, 12% of respondents opted for the $40-$49 range compared to 26% last time. The $60-$69 price range was favoured by 29%, as opposed to just 5% one year ago. In February 2016, 31% predicted crude oil prices to be in the $30-$39 price range, whereas just 1% did so this time.

Richard Greiner, Moore Stephens Partner, Shipping & Transport, says, “After three successive quarterly increases, shipping confidence has held steady. This is encouraging given the continuing political uncertainty in the US and Europe. Shipping is vulnerable to changes in the political landscape, and a slew of elections in leading industrialised nations will render it particularly so this year.

“Elsewhere, the issues facing the industry include an over-supply of ships and insufficient demolition. Freight markets are dragging along the bottom in many sectors, with net rate sentiment in the tanker market being particularly low. Add to this the expectation of higher ship finance costs, the mounting costs of regulation, the threat of cyber-crime and projected increases in operating costs and it is evident that shipping will not be a picnic for the foreseeable future.

“But shipping is not a natural fit for the pessimist, and those with meaningful experience of the industry will be looking with some justification for a re-strengthening of rates in the tanker and dry-bulk trades, supported by continued rationalisation of newbuilding plans and accelerated recycling levels. Meanwhile, oil prices will continue to go up, which is mixed news for the shipping industry. For those who can effectively manage risk and volatility, shipping is still the place to be.”

The full survey report can be downloaded from the Moore Stephens website:
http://www.moorestephens.co.uk/News-views/March-2017/shipping-confidence-industry-political-pressures


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