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


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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

Moore Stephens says ship operating costs are set to increase for 2015 and 2016

Vessel operating costs are expected to rise in both 2015 and 2016, according to the latest survey by international accountant and shipping consultant Moore Stephens. Crew wages, repairs and maintenance, and drydocking are the cost categories likely to increase most significantly over that period.

                                              

The survey is based on responses from key players in the international shipping industry, predominantly shipowners and managers in Europe and Asia. Those responses revealed that vessel operating costs are expected to rise by 2.8% in 2015 and by 3.1% in 2016.

Crew wages are expected to increase by 2.4% in 2015 and by 2.3% in 2016, with other crew costs thought likely to go up by 2.0% and 1.9% respectively for the years under review. The cost of repairs and maintenance is expected to escalate by 2.3% in 2015 and by 2.4% in 2016, while drydocking expenditure is predicted to increase by 2.6% and 2.3% in 2015 and 2016 respectively.

The cost of hull and machinery insurance is predicted to rise by 1.8% and by 1.9% in 2015 and 2016 respectively, while for P&I insurance the projected increases are slightly lower – 1.7% and 1.8% respectively.

Expenditure on spares is expected to rise by 2.3% in 2015 and by 2.2% in 2016, while for stores the corresponding projected increases are 1.8% and 1.9%. The increase in outlay for lubricants, meanwhile, is predicted to be 1.1% and 1.7% in 2015 and 2016 respectively, and that for management fees 1.7% in each of the two years under review.

 

The predicted overall cost increases for 2015 were highest in the offshore sector, where they averaged 3.4% against the overall survey increase of 2.8%. For 2016, it was the tanker sector which was predicted to experience the highest level of increases – 3.4% compared to the overall survey average of 3.1%. The container ship sector, meanwhile, was not far behind at 3.3%.

One respondent said, “We expect costs generally to increase as charter rates creep up, although they will probably lag behind the latter. With charter rates generally low at present, the provision of services to the shipping industry needs to remain competitive, with suppliers reluctant to put up charges too soon for fear of losing business.”

Elsewhere it was noted, “Future operating costs will increase exponentially due to innumerable new regulations, the low competence of seafarers, the high bargaining power of the oil majors, stricter rules regarding maintenance and repairs carried out in ports, the advent of more sophisticated onboard machinery, and increasing consolidation in the marine equipment and services sector, resulting in more bargaining power for fewer, larger companies.”

Another respondent highlighted the fact that ship managers are under increasing pressure, pointing out, “Overcapacity within the markets is driving charter rates down, owners are facing higher costs to finance vessels, and operators are fighting much harder for cargo. Ship managers are now required to look after much more for the same management fees.”

Another still emphasised, “Due to the high financial costs involved in operating a newer world fleet, and to an over-supply of tonnage and depressed freight markets, there will be increasing pressure to maintain or freeze operating cost levels in order for owners to remain competitive. This is likely to change between 2017 and 2020, however, with significant capital expenditure required for regulatory compliance.”

One respondent predicted, “Crew costs will continue to be the main area of increased operating expenditure,” a sentiment echoed by another, who referenced the effect of the Maritime Labour Convention 2006 in this regard to support this supposition. Elsewhere, however, it was noted, “Crew costs will remain stable because the workforce will always be recruited from cheap countries.”

‘Staggering’ cost increases due to redundancy in electronic navigation and communication equipment, and increased port dues, were among other issues deemed by respondents in the survey to be likely to result in an increase in operating costs.

Moore Stephens also asked respondents to identify the three factors that were most likely to influence the level of vessel operating costs over the next 12 months. Overall, the most significant factors identified by respondents were finance costs at 22% (compared to 21% in last year’s survey) and competition also at 22% (up from 18% last time). Crew supply was in third place with 17% (down 3 percentage points on last time), followed by demand trends (down by one percentage point to 16%) and labour costs, unchanged at 13%. The cost of raw materials was cited by 8% of respondents (compared to 10% in last year’s survey) as a factor that would account for an increase in operating costs.

Moore Stephens shipping partner Richard Greiner says, “The predicted increases in ship operating costs for this year and next compare to an average fall in 2014 of 0.8% in operating costs across all main ship types recorded in the recent Moore Stephens OpCost report. Nevertheless, the level of increases anticipated for 2015 and 2016 are low in comparison with many we have witnessed in recent years. Shipping has seen much worse, and prevailed. For example, many of the companies which endured a 16% rise in operating costs in 2008 are still operating successfully today.

“It is no surprise that crew wages feature near the top of the predicted operating cost increases for both 2015 and 2016, not least because of the entry into force of the Maritime Labour Convention 2006, which mandates the manner in which seafarers must be paid. For shipping, as for every industry, investment in good people will always be money well spent.

“Expenditure on repairs and maintenance, meanwhile, is expected to increase over the two-year period by the same aggregate amount as crew wages. Again, this is not a surprise. According to OpCost, repairs and maintenance expenditure was marginally down in 2014 on the previous year, attributable in part to world steel prices dropping to their lowest level in a decade during 2014/2015 and to disappointing freight rates. But things are likely to change. Steel prices are predicted to rise steadily over the next four years, there are realistic prospects of an improvement in the freight markets, and regulatory requirements are set to bite even harder. All these developments are likely to increase the industry’s repair and maintenance bill and will doubtless impact, also, on drydocking costs, which are predicted to be the subject of some of the biggest increases in 2015 and 2016. Lube costs are also set to increase in 2016 on the back of recovering oil prices.

"In addition to traditional operating costs, the level of which can generally be predicted to a certain degree, shipping has other potential costs hanging over its head which are more difficult to budget . For example, ratification of the Ballast Water Management Convention has seemingly stalled at the finish line. It has more than enough signatories, but still needs slightly more than an additional 2% in terms of tonnage to get itself on the books. Whilst  the  ratification is tardy, nobody doubts that it will cost owners and operators a lot of money once the convention enters into force.

"Meanwhile, a government spokesman for the Marshall Islands recently characterised the IMO secretary-general as a ‘danger to the planet’ for his alleged failure to endorse more stringent curbs on the shipping industry’s CO2 emissions. This is what Sherlock Holmes might have described as a ‘three-pipe problem’ – politics, gas and competition. It is not an unusual combination in shipping. In the end, however, it is likely to have an impact on the industry’s operating costs, and there is no accounting for that.”

Bone fide journalists can request an electronic copy of the Future Operating Costs Report by emailing chris@merlinco.com

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and insurance 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 103 countries, employing 26,290 people and generating revenues in 2014 of $2.7 billion.      

For more information:                                                                        

Richard Greiner                                                               

Moore Stephens LLP                                                                 

Tel: +44 (0)20 7334 9191                                                           

richard.greiner@moorestephens.com      

Shipping confidence levels rise to 2015 high

Shipping confidence levels rise to 2015 high

Overall confidence levels in the shipping industry rose in the three months ended August 2015 to their highest level this year, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens. Respondents to the survey were concerned predominantly about low freight rates and overtonnaging, with continuing doubts also expressed about private equity funding.

In August 2015, the average confidence level expressed by respondents in the markets in which they operate was 5.9 on a scale of 1 (low) to 10 (high). This compares to the 5.3 recorded in May 2015, which equalled the lowest figure recorded in the life of the survey, launched in May 2008 with a confidence rating of 6.8.

All main categories of respondent recorded an increase in confidence this time, most notably charterers (up from 4.2 to 6.5) and owners (up from 5.1 to 5.8). The confidence of brokers, meanwhile, was up from 4.8 to 5.2, and that of managers from 6.1 to 6.4.

Geographically, confidence was up in Asia from 4.9 to 5.8, in Europe from 5.3 to 5.9, and in North America from 6.0 to 6.3.

While some respondents were confident that the shipping markets would improve in line with economic developments, others were more cautious. One said, “The shipping markets have been over-stocked, and there has been far too much interest from non-traditional shipping sources with no real clue how these intricate markets work. Once built, the ships are there! The low oil cost means the drive for alternative fuels and cheaper propulsion is not being followed as diligently as one might have expected.”

A number of respondents echoed the concern about the potentially harmful effect of the entry into the market of non-traditional shipping sources, while there was the usual level of concern about too many ships and too little scrapping. Increased regulation was another recurring topic, with one respondent complaining, “Regulations are going to kill us!”

Another respondent emphasised, “Current market conditions realistically reflect tonnage oversupply in all sectors. Until this corrects itself, global trade patterns will skew supply over demand. Shipping decisions are very often made on sentiment, but current confidence cannot be based on this.” Another still said, “Expect a static trend for the next few years. It might require a major conflagration to kick-start the industry. That may sound unpleasant, but without it we are in for a lengthy stay in the doldrums.”

“Everything seems to be operating on the two-steps-forward-and-one-back principle, alternating with the one-step-forward and two-back principle!” said one respondent, while another cautioned, “Today’s shipping market is really competitive and we need to be more careful in choosing good and reputable principals.”

The likelihood of respondents making a major investment or significant development over the next 12 months was up on the previous survey, on a scale of 1 to 10, from 5.0 to 5.3, equalling the highest figure over the past 12 months. All main categories of respondent were more confident in this regard than they were three months ago, most notably charterers (up from 4.5 to 6.1).

One respondent noted, “Although we look for a stable long-term charter, it is unlikely that charterers could commit themselves to a term longer than three years. We are trying to decrease our exposure to shipping assets.” Another remarked, “There is concern about over-investment in tonnage in the wet trades by private equity houses, which has the potential to create a significant drop in rates and a further long run of below-opex returns for owners.”

The number of respondents who expected finance costs to increase over the next 12 months was up by eight percentage points, from 40% to 48%. The shift in sentiment in this regard was most notable in the case of owners (up from 35% to 53%) and charterers (up from 33% to 50%).

One respondent said, “The global economic slowdown is a major cause for concern, especially in developing countries.”

Competition, demand trends and finance costs featured as the top three factors cited by respondents as those likely to influence performance most significantly over the coming 12 months. The numbers for competition were up 5 percentage points on last time to 25%. There was a one percentage-point drop (to 23%) in the numbers citing demand trends in this regard, and an increase of 4 percentage points (to 18%) for finance costs. Operating costs, unchanged at 11 %, featured in fourth place, ahead of tonnage supply, down 8 percentage points to 7%. Fuel costs, crew supply, regulation and port congestion occupied the remaining places.

One respondent said, “Many small competitors are entering the market without observing the necessary business ethics.”

There was a fall in the number of respondents anticipating higher freight rates in the tanker and container ship sectors, but expectations of improved rates in the dry bulk trades were up on the figures for May 2015. There was a positive overall net sentiment for all three tonnage categories: +12 for tankers, +21 for dry bulk, and +3 for container ships.

One respondent said, “We expect the tanker market to remain on a steady path over the next 12 months.” Respondents meanwhile expressed “significant concerns about continued oversupply in the dry bulk sector,” while elsewhere it was noted, “Less ordering in the container sector, as a result of mixed/weak results will help to balance supply/demand going forward.”

Richard Greiner, Moore Stephens Partner, Shipping Industry Group says: “It is always encouraging to see a graph moving in the right direction. Perversely, the main reason for the improved level of confidence revealed by our latest survey may be the same as that which saw the industry’s perceived fortunes equalling a seven-year low in May of this year. Volatility works both ways.

“One respondent highlighted a perceived trend towards the so-called bureaucratisation of shipping, with smaller players losing out to their bigger competitors. Few would argue that there has ever been a tougher time for the smaller operator than in today’s industry. Yet such businesses can, and do, survive. To do so, they need to identify a niche role in the market, one in which they can add value and provide a level of service superior to that offered by their competitors. Moreover, in common with even the biggest players, they need a sound business plan.

“Another observation concerned the way in which some traditional trades are in danger of disappearing as the EU increasingly becomes a destination for imports from the Far East and India, rather than a producer of goods. This is not a new phenomenon, but it does underline how important it is for shipping businesses to keep pace with and adapt to change, or even anticipate it where possible. Information, and the ability to disseminate it, together with the timely identification of risk, has never been more important.

“The respondents to our survey are asked to comment on their industry expectations over the coming 12 months. Many of them, however, are also interested in the longer-term view, and the portents here are generally encouraging.

“Firstly, world population is growing, and has been since the end of the Black Death. At the end of 1970, it stood at 3.7 billion. The United Nations predicts that the global population will reach between 8.3 billion and 10.9 billion by 2050. This creates and sustains demand for shipping services, and that is good news for the industry.

“In 1970, according to the IMF, annual world GDP was growing at the rate of 3.7%. By 2000, the figure was 4.8%. Today, world GDP growth is put at 3.5%, but is predicted to climb to almost 4.0% by 2020. In short, the world economy is predicted to grow which, again, is good news for shipping.

“The World Trade Organisation forecasts that growth in the volume of world trade will rise from 2.8% in 2014 to 4.0% in 2016. Again, that is good news for shipping. World trade carried by sea is also on the increase and, despite the current difficult economic climate, the longer-term outlook for the industry remains positive as emerging economies continue to increase their requirements for seaborne goods and raw materials.

“So the long-term outlook for shipping offers encouragement to existing and new investors alike. Those who are not attracted by the longer-term prospects, meanwhile, will doubtless exit the industry, and in the process may help solve some of its problems.”
The Moore Stephens Shipping Confidence Survey includes responses from key players worldwide in the international shipping industry to a targeted, web-based survey by the Moore Stephens Shipping Industry Group.

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and insurance 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 103 countries, employing 26,290 people and generating revenues in 2014 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 confidence equals seven-year low

Overall confidence levels in the shipping industry fell during the three months to May 2015 to a level equal to the lowest rating recorded in the past seven years, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens. Respondents complained predominantly about low freight rates and overtonnaging, while some expressed continuing doubts about private equity funding.

In May 2015, the average confidence level expressed by respondents in the markets in which they operate was 5.3 on a scale of 1 (low) to 10 (high), down from 5.5 in February 2015. This equals the lowest figure recorded in the life of the survey, which was launched in May 2008 with a confidence rating of 6.8.

Charterers were the only category of main respondent to record an increase in confidence, albeit from the all-time survey low last time of 3.9. But their rating of 4.2 was still the lowest in the latest survey. The confidence of owners was down from 5.4 to 5.1, that for managers from 6.2 to 6.1, and that for brokers from 5.0 to 4.8. Geographically, confidence was down in all main areas covered the survey, with the exception of North America, where it showed a marginal increase from 5.9 to 6.0.

A number of respondents expressed the view that an upturn in market conditions was some way off. One said: “After eight years of misery, rates must go up if shipping companies are to survive. Another remarked, “Boom / bust cycles in the shipping industry usually last about seven years, which is sufficient time for any money lost to return to the market, with interest rates at, say, 6 percent. But now, because of excess liquidity in the markets and low interest rates, there is a feeling that any recovery will be a very long time coming.” Yet another respondent noted: “For as long as there is no correction in the availability of shipbuilding capacity, and for as long as outside money keeps coming in, there is no hope of an improvement in the shipping industry.” Others, however, were less downbeat, such as the respondent who said: “The aftershocks are almost over, and a recovery should get under way soon.”

The depressed state of the dry bulk sector and the effect of the entry into the market of private equity were the subjects which dominated responses to the survey, neatly encapsulated by the respondent who noted: “The remarkable acceleration of scrapping of larger bulk carriers and the conversion of many newbuildings into tankers will have a positive effect on the dry bulk market sooner than had previously been anticipated - provided, of course, that suicidal private equity has learnt its lesson and accepts that this is not an opportunity to make a quick fortune.” Another respondent said: “The problem facing shipping is the entry into the market of silly money by investors who have no idea about how the industry works and for whom any money lost is a drop in the ocean.”

The likelihood of respondents making a major investment or significant development over the next 12 months was down on the previous survey, on a scale of 1 to 10, from 5.1 to 5.0, the lowest figure since the 4.9 recorded in February 2012. Charterers, however, were more confident in this regard than they were three months ago. One respondent said: “The thin-to-non-existent margins at which Asian yards operate, together with undue concern about the need for new ‘green’ vessels, encourages investment in newbuildings rather than in existing tonnage. This would never happen in real estate, for example, where recession precludes additional supply for years. We are very pessimistic about shipping investment returns for many years to come.”

The number of respondents who expected finance costs to increase over the next 12 months was up by eight percentage points, from the lowest figure in the seven-year life of the survey, to 40 percent. One respondent said: “No real investor can dare to make investments in ships in the coming months.”

Demand trends, competition and tonnage supply featured as the top three factors cited by respondents as those likely to influence performance most significantly over the coming 12 months. The numbers for demand trends and competition were each down on last time by one percentage point, to 23 percent in the case of the former and to 20 percent for the latter. Tonnage supply, meanwhile, was up by one percentage point to 15 percent, one percentage point ahead of finance costs. Operating costs, down by one percentage point to 11 percent, featured in fifth place, followed by fuel costs, down by one percentage point to 6 percent, equalling the lowest figure recorded in this category since February 2010. One respondent said: “Only the big owners can make investments in order to be ready with good tonnage, and not be displaced by competitors, when the market recovers.”

Turning to the freight markets, there was a fall in the number of respondents anticipating higher rates in the dry bulk sector, but expectations of improved rates in the tanker and container ship trades were up on the figures for February 2015. Overall net sentiment, based on the difference between the number of respondents who expected rates to improve and the number who thought they would deteriorate, was positive in all three main tonnage categories covered by the survey.

One respondent said: “We are experiencing the worst dry bulk market since the 1980s.” Another urged, “Tankers are not bad for the moment, but please stop ordering more ships! Will we never learn?” In the container ship sector it was noted: “There is general overcapacity, with rates collapsing and insufficient tonnage management.”

Richard Greiner, Moore Stephens Partner, Shipping Industry Group, says: “The fact that shipping confidence has revisited the low point recorded twice before in the seven-year life of the survey underlines both the current volatility of the markets and the fragile nature of confidence itself in an industry where, little more than 12 months ago, it was at an all-time high.

“The nature of the concerns expressed by respondents to the survey comes as no surprise. Familiarity in this case breeds continuing uncertainty rather than contempt. There are no quick fixes for the likes of overtonnaging and low freight rates. The solutions, like the problems themselves, are long-term in nature, and will undoubtedly involve some pain along the way. Moreover, there is a not a one-size-fits-all solution for the industry as a whole. What is good news for some sectors is quite the opposite for others.

“Lower oil prices might be helping smaller operators to compete by virtue of reduced bunker costs, but in many respects they are bad news for the bigger players with whom they are competing. Access to finance for newbuildings in either the traditional or private equity markets is good news for owners with an eye on expansion, but bad news for those seeking investment to upgrade existing tonnage.

“Shipping has enough problems to occupy itself for the foreseeable future. But it must not take its eye off the ball when it comes to the incipient costs associated with achieving regulatory compliance, or indeed of properly managing the increasing risks which it faces on a daily basis, encompassing everything from the financial stability of counter-parties to cyber security threats.

“It is not all bad news. The Baltic Dry Index (BDI) has started to nudge upwards after an extended period in freefall. The tonnage supply / demand imbalance, although still unsatisfactory, is improving rather than deteriorating. There will always be a demand for shipping. Moreover, given the high operating and regulatory costs involved, and the fact that the economic and industry downturn has already claimed significant numbers of weaker companies, the shipping industry is likely to be stronger than it has been for many years once the recovery does get under way. In the meantime, it is just a question of holding one’s nerve.”

The Moore Stephens Shipping Confidence Survey includes responses from key players worldwide in the international shipping industry to a targeted, web-based survey by the Moore Stephens Shipping Industry Group. Responses were received from owners, charterers, brokers, advisers, managers and others. Editors can apply for a copy of the survey by emailing chris@merlinco.com

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and insurance 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 103 countries, employing 26,290 people and generating revenues in 2014 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

Shipping confidence rises for fourth successive quarter

Overall confidence levels in the shipping industry increased in the three months ended May 2012, to reach their highest level since February 2011, according to the latest Shipping Confidence Survey from leading accountant and shipping consultant Moore Stephens. This is the fourth successive quarter in which there has been an improvement in confidence, leading to an increased expectation of new investment on the part of respondents, despite an anticipated increase in the cost of finance over the next twelve months.

In May 2012, the average confidence level expressed by respondents in the markets in which they operate was 5.7 on a scale of 1 (low) to 10 (high), compared to the figure of 5.5 recorded in the previous survey in February 2012, and to the 5.6 recorded one year previously, in May 2011.  The survey was launched in May 2008 with a confidence rating of 6.8.

The biggest increase in confidence was recorded by ship managers, up from 5.2 to 6.0 this time, the highest figure for this category of respondent since February 2011. Confidence among owners and charterers remained unchanged this time, at 5.6 and 5.0 respectively. Brokers (down from 5.6 to 5.2) were alone among all respondents in being less confident about the market than they were in February 2012. Confidence was up in Europe for the fourth successive quarter, from 5.3 to 5.6, stable in Asia at 5.7, and down in North America from 5.6 to 5.5.

A number of respondents were upbeat about prospects for the market, despite admitting that any recovery would have to start from a comparatively low base. “If we are still alive now, after all the vessels that have entered the market and all the banks that have pulled out, there is a good chance that better times await us,” said one. Some suggested that a recovery in the markets was achievable in the short term, typified by the comment from the respondent who noted, “The volume of business activity is expected to increase in the next quarter.” Most, however, were taking the longer view. “We will see the imbalance between tonnage supply and demand corrected in early 2014,” said one. “Until then, we hope to see ship operators, cargo interests and charterers exercising good supply-chain values based on reasonable freight and time charter rates in order to get the industry through these tough times”.

Respondents to the survey expressed a high level of concern about the global economy, and particularly about problems within the eurozone. One said, “The European economic crisis is worsening, leaving ship financing at the crossroads”. Two familiar causes of concern were again evident in the responses to the survey, the first of which was summed up by the respondent who emphasised, “There are too many ships coming onto the market”. One respondent foresaw a different kind of problem arising from the surfeit of tonnage, warning, “For the first time in a long while, shipping could face a situation where newbuildings currently being delivered may be rendered technically obsolete in five years’ time by new ships being ordered today which, due to technical innovations, may be up to 20 per cent cheaper to operate.”

Meanwhile, despite the recent fall in global oil prices, and consequently in the price of bunkers, fuel costs continued to occupy the thoughts of respondents. “The ultimate squeeze nowadays really comes from the cost of bunkers,” said one respondent. “On top of the high price of oil, refineries are producing less and less marine product, putting further pressure on bunker prices”.

The overall number of respondents expecting to make a major investment or significant development over the next twelve months rose, on a scale of 1 to 10, from 4.9 to 5.3, the highest figure since the 5.6 recorded in May 2011. All categories of respondent were more confident in this regard than in the previous survey, most notably charterers, whose expectation rating in respect of major investments was up from 4.9 to 5.8. The rating for owners was up from 5.2 to 5.6, and for managers from 5.2 to 5.5. Forty-five per cent of charterers, and 40 per cent of both owners and managers, assessed the likelihood of their making an investment at 7.0 out of 10.0 or higher. Expectation levels of major investments were up in all geographic areas covered by the survey, with the exception of North America (down from 5.0 to 4.5). The biggest increase was in Europe (up from 4.8 to 5.3).

One respondent said, “There will be excellent opportunities for cash buyers over the next 12 to 18 months, as banks increasingly foreclose or as distressed owners are forced to sell in order to survive”. Another noted, “There is an opportunity to invest in eco-friendly vessels at very low cost.”

Demand trends, competition and finance costs were the top three factors cited by respondents overall as those likely to influence performance most significantly over the coming twelve months. But the numbers in each category were down - in the case of demand trends from 22 per cent to 21 per cent, competition (down from 20 per cent to 18 per cent) and finance costs (down one percentage point to 16 per cent).  Fuel costs featured in fourth place, up from 12 per cent to 14 per cent, the second highest figure achieved in the life of the survey, behind only the 16 per cent recorded one year ago, in May 2011. Meanwhile, operating costs were cited by 12 per cent of respondents as a factor likely to influence performance significantly over the coming year, a three percentage-point increase on last time, and equal to the highest figure recorded for operating costs since the survey was launched in May 2008.

Fuel costs were in fact the most significant performance-influencing factors for charterers, up to 26 per cent from 23 per cent in February 2012, pushing demand trends (down from 24 per cent to 21 per cent) into second place. Competition – down significantly from 23 per cent to 16 per cent – was in third place.

Demand trends remained the number one performance-affecting factor for owners, unchanged at 21 per cent. Finance costs (unchanged at 18 per cent) were in second place, followed by competition, down one percentage point to 16 per cent. For managers, meanwhile, competition and demand trends (both down one percentage point this time to 18 per cent) occupied the top two places, with finance costs up one percentage point to 17 per cent in third place.

Geographically, demand trends remained the most significant factor for respondents in Asia (up from 22 per cent to 24 per cent) and in Europe (down from 22 per cent to 21 per cent). In Asia, fuel costs (16 per cent) supplanted finance costs in third place, behind competition (down from 21 per cent to 18 per cent) in second position. Fuel costs were also a significant factor in North America, where they were cited by 18 per cent of respondents. In Europe, finance costs (up from 18 per cent 19 per cent) featured in second place, ahead of competition, unchanged at 18 per cent.

There was a 2 percentage-point increase (from 49 per cent to 51 per cent) in the number of respondents overall who expected finance costs to increase over the next twelve months. The number of respondents who thought that finance costs would decrease over the coming year remained unchanged, meanwhile, at 8 per cent. The number of charterers who expected finance costs to rise was down 14 percentage points to 34 per cent, an all-time low in the life of the survey, not only for charterers but across all main categories of respondent. There was, however, greater expectation of higher finance costs on the part of owners (up from 46 per cent to 54 per cent) and managers (up from 45 per cent to 52 per cent). The number of brokers anticipating costlier finance was meanwhile down 7 percentage points to 47 per cent. One respondent complained, “We are completely hamstrung by banking and finance constraints”, while another emphasised, “The banks postpone much-needed action and keep on protecting bad owners by focusing on short-term cashflow”.  More respondents in both Asia and Europe were anticipating an increase in finance costs compared to last time (up from 49 per cent to 50 per cent, and from 48 per cent 52 per cent, respectively). The same was true of North America (up from 38 per cent to 48 per cent).

There was generally good news about the prospects for higher tanker and container ship rates over the coming year, even though one respondent - without specifying any particular sector - complained, “Brokers are not fighting for the best rates. They need to fix so many vessels per day that they no longer care about the levels at which they fix, and owners are suffering.”

The survey revealed an increased level of expectation of higher rates in the tanker sector than was the case three months previously. Overall, 40 per cent of respondents thought that rates would increase, as opposed to 35 per cent last time. Charterers were the notable exception. Just 18 per cent anticipated that rates would go up, compared to 35 per cent last time. Only once before in the life of the survey (12 per cent, in February 2009) has a lower figure been recorded across all main categories of respondent. The number of owners anticipating higher tanker rates was up from 34 per cent to 41 per cent, and of managers from 36 per cent to 41 per cent. Just 7 per cent of managers expected tanker rates to fall, a new survey low for this category of respondent. The expectation of higher rates was common across all the main geographical areas covered by the survey.

It was a similar story in the container ship market, where 34 per cent of respondents overall expected rates to go up, compared to 31 per cent in the previous survey. The number of respondents anticipating higher rates over the coming year was up in all categories, in the case of charterers by 15 percentage points to 41 per cent. For owners, the increase was from 28 per cent to 35 per cent, and for managers from 30 per cent to 31 per cent.

It was a different story in the dry bulk sector, however, where most of the indicators were down, in contrast to the previous survey, which saw a surge of optimism on the part of all respondents that rates would increase. Overall, 35 per cent of respondents this time expected dry bulk rates to go up over the coming year, as against 38 per cent in February 2012. Owners (up one percentage point to 36 per cent) were alone in being more confident of rate increases. The number of charterers of like mind, meanwhile, dropped 29 percentage points to just 15 per cent, the second-lowest figure in the life of the survey, behind only the 8 per cent recorded in August 2011. In fact, the number of charterers who thought that dry bulk rates would go lower over the coming year was greater, at 23 per cent, than the number anticipating that they would go higher.

Moore Stephens shipping partner, Richard Greiner, says, “Is there a more resilient industry than shipping? It seems unlikely. Despite the financial woes in Europe, notwithstanding the slump in the freight markets, and irrespective of tonnage overcapacity, our latest survey records an increase in confidence in the shipping sector for the fourth consecutive quarter. Indeed, 40 per cent of owners rate their prospects of making a new investment over the next twelve months at 7 out of 10, or higher – this despite the fact that the cost of finance is expected to go up over the same period. This is encouraging, although, if intent translates into action, it will do nothing to address the tonnage overhang. 

“It is true that the increased level of confidence recorded in the survey owes something to the conviction on the part of some respondents that the bottom of the market has now been reached. But a number of respondents nevertheless saw the beginnings of a recovery in the markets for more positive reasons, not least the continuing, indispensable role that shipping has to play in the conduct of global trade. Shipping is not an industry that will come and go. Nothing is going to replace shipping, at least not in the lifetimes of those involved in the industry today, or even of their great-great-grandchildren. So long-term players are looking to navigate a way through the difficulties currently besetting the industry, to emerge in calmer – and more profitable – waters.

“There is little new about the problems, which range from political and economic crises to the price of a good second mate. What is unusual is the severity of those problems, and their confluence at one period in time. And, as is so often the case, each possible remedy brings with it the potential for another difficulty. Fuel costs are a major expense, which shipping can do little to influence for the better. What it can do – and is doing already – is starting to explore the possibility of a future based on eco-friendly ships powered by fuel other than diesel oil. But, as more than one respondent noted, that places a potential cloud over some of the ships now being built and delivered, which could be made redundant by new technology long before they have served a useful working life. Furthermore, some owners are claiming that eco-friendly designs are being advanced by shipyards as a marketing gimmick to persuade companies to order more ships at a time when we already have too many.

“The number of respondents to our survey who cited operating costs as a significant performance-influencing factor is as high now as at any time in the past four years. Such cost increases, which are expected to continue for the next two to three years, can be ameliorated to a certain extent by good husbandry and sound business planning, and will of course be more easily borne in a profitable freight market. The same cannot be said, however, of some of the other issues affecting shipping. There is no end in sight, for example, to the political and economic strife that is today’s eurozone. And new finance is very hard to come by. Shipping is going to need the continuing support of the banks as it struggles to emerge from its current difficulties. Some argue that the banks have not done – and are not doing – enough. One leading operator has gone so far as to say that shipowners will have to become bankers in order to survive. He has even coined a name for this new hybrid being – the ‘shanker’.

“For those for whom this is a development too far, going to the bank with a sound business plan is likely to remain the preferred option. The banks, of course, will not want to see shipowners who lack confidence, any more than a gourmet likes to see a thin chef. Fortunately, on the evidence of our survey, confidence is something the industry does not lack. Nor does it lack the will to put its best foot forward in times of trouble, as evidenced by the recent Posidonia exhibition in Piraeus. Here, the great and the good of shipping gathered in their thousands, as indeed they have done every two years for the past forty years and more, come metaphorical rain or shine. In shipping, the show must go on.”

The Moore Stephens Shipping Confidence Survey includes responses from key players worldwide in the international shipping industry to a targeted, web-based survey by the Moore Stephens Shipping Industry Group.  Responses were received from owners, charterers, brokers, advisers, managers and others. Editors can apply for a copy of the survey by emailing chris@merlinco.com

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 636 offices of independent member firms in 100 countries, employing 21,197 people and generating revenues in 2011 of $2.3 billion. http://www.moorestephens.co.uk/  

For more information:                                                                        

Richard Greiner, Moore Stephens LLP

Tel: +44 (0)20 7334 9191

email: richard.greiner@moorestephens.com

Shipping confidence up on expectation of rate increases but new investment appetite wanes

Overall confidence levels in the shipping industry increased slightly in the three months ended February 2012, to reach their highest level since May 2011, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens. This is the third successive quarter in which there has been a small uptick in confidence. Rates are expected to increase over the coming year in the three main tonnage sectors covered by the survey. But the number of respondents expecting to make a major new investment over the next twelve months fell to its lowest figure for three years, despite a fall in the number of those anticipating an increase in finance costs.

In February 2012, the average confidence level expressed by respondents in the markets in which they operate was 5.5 on a scale of 1 (low) to 10 (high). This is marginally up on the figure of 5.4 recorded in the previous survey in November 2011. It compares to the 5.8 recorded one year previously, in February 2011, and to the 5.9 figure posted in February 2010. The survey was launched in May 2008 with a confidence rating of 6.8.

Confidence was up among owners (rising from 5.3 last time to 5.6), charterers (4.9 to 5.0) and brokers (5.2 to 5.6). But managers (down from 5.6 to 5.2) were alone among all respondents in being less confident about the market this time, having been the most optimistic in the previous survey. Confidence was up in Europe, from 5.1 to 5.3, although the region remained the least optimistic of all geographic sectors covered by the survey. Meanwhile, confidence was down in Asia, from 5.8 to 5.7, and in both North America and Latin America (from 5.8 to 5.6 and from 6.4 to 5.7 respectively).

Although confidence levels improved marginally over the three-month period covered by the survey, a number of respondents expressed concern about the current state of the industry. “There are too many ships,” said one. “Freight levels cannot go much lower and we will be bumping along the bottom for a while. Apart from owners causing their own malaise by over-ordering ships, structural changes - such as China subsidising its own maritime industry - will keep a lid on developments in certain sectors.”

A number of respondents counselled patience. “Some market sectors are very depressed,” said one, “but a re-balancing is already under way. We have to be patient. It will be at least three-to-five years until margins become reasonable.”

A number of respondents, however, saw reasons for greater optimism. “We firmly believe that the markets will pick up over the next twelve months, although the gains will be quite low,” said one, while another insisted, “We think fourth-quarter 2012 will signal a turning-point for the industry.”

The role of the banks was uppermost in the minds of a number of respondents. One emphasised, “Numerous owners are unable to make their mortgage payments, and a large majority will be unable to keep up just the interest payments. The banks may be ready to announce further rounds of write-offs to avoid tax and to please the markets. It's only a matter of time before more shipowners are drawn into the firing line. We are seeing operators dropping out of the market or vessels being handed over or taken back due to non-payment of hire. The margins have gone for speculators, and charterers can now be very selective and are driving rates down. It is amazing that we haven't seen more established names affected already. Owners are managing to keep the banks at bay with the book value of ship assets, but if the assets were written down to true market values then we would see another story.”

In common with previous surveys, a high percentage of respondents expressed concern about overtonnaging. One remarked, “It is unbelievable that some owners are still ordering new ships, given the current economic problems and the general perception that rates will remain low when the vessels now on order eventually enter service.”

Predictably, political and economic factors – and their likely impact on the industry - continued to occupy the thoughts of respondents. One felt that, “The upcoming US elections in November will act as a catalyst in allowing new money to flow into the system,” while another said, “The continued inability of western governments to either control their spending or exit the euro makes bad times more likely.”

The overall number of respondents expecting to make a major investment or significant development over the next twelve months fell, on a scale of 1 to 10, from 5.2 to 4.9, the lowest figure since the 4.8 recorded in February 2009. All categories of respondent were less confident than in the previous survey, most notably charterers, whose expectation rating in respect of major investments was down from 5.8 to 4.9, the lowest figure recorded by this category of respondent since the 4.8 returned in May 2008. This reverses a trend whereby charterers had emerged over the life of the survey as the category of respondent most confident of making a major investment. This time, the rating for owners was down from 5.5 to 5.2 and, for managers, from 5.4 to 5.2. Over the life of the survey, the highest overall expectation rating is the 6.0 recorded in August 2010.

Expectations of major investments were down in all geographic areas covered by the survey. In Asia, the fall was from 5.2 to 5.0 (the lowest figure since November 2009), while in Europe it was from 5.1 to 4.8, the lowest figure for that region for three years and equal to its lowest rating in the life of the survey. The figures for Latin America (6.6 to 5.2) and North America (5.1 to 5.0) were also down.

Demand trends, competition and finance costs continue to dominate the top three factors cited by respondents overall as those likely to influence performance most significantly over the coming twelve months. Overall, 22% of respondents (down from 24% last time) cited demands trends as the most significant performance-affecting factor, with 20% (up from 17% last time) identifying competition. Finance costs (unchanged at 17%) featured in third place, followed by fuel costs (up 3 percentage points to 12%).
Fuel costs were in fact the second most significant factor for charterers, despite being cited by fewer respondents in this category (23%) than last time (26%). Demand trends (unchanged at 24 cent) was the leading performance-influencing factor for charterers, with competition - up significantly from 15% to 23% - in third place.

Although demand trends remained the number one performance-affecting factor for owners, it was cited by only 21% of such respondents, as opposed to 26% last time. Finance costs (up one percentage point to 18%) were in second place, followed by competition, at 17%. For managers, meanwhile, competition and demand trends (both up 2 percentage points on last time to 19%) occupied the top two places, with finance costs in third place at 16%.

Geographically, demand trends remained the most significant factor for respondents in Asia and Europe (both 22%, compared to 18% and 26%, respectively, in November 2011). In Asia, competition assumed increasing importance for respondents (up from 17% last time to 21%), with finance costs in third place at 15%. In Europe, competition (up 2 percentage points to 18%) shared second place with finance costs, down from 19% last time. In North America, meanwhile, demand trends (up from 25% to 28%) pushed competition (down from 26% to 25%) into second place, with finance costs in third place with 15%.

There was an 8 percentage-point drop (from 57% to 49%) in the number of respondents overall who expected finance costs to increase over the next twelve months – the lowest figure since November 2010. There was also a 2 percentage-point increase, from 6 to 8%, in the number of respondents who thought that finance costs would come down during the coming year – still some way short of the 25% who thought likewise three years ago, in February 2009. The numbers of owners and managers expecting finance costs to rise was down (from 57% to 46%, and from 56% to 45%, respectively), but 48% of charterers were expecting increases as opposed to 46% last time.

Fewer respondents in both Asia and Europe were anticipating an increase in finance costs compared to last time (down from 54% to 49% and from 61% to 48%, respectively). The same was true of North America (down from 47% to 38%).

According to one respondent, “Never before have we been confronted with a situation where the banks appear not to understand the industry, seemingly preferring statistics above a clear understanding of the business. If they stopped providing billions of dollars for even more unnecessary fleet expansions on the part of certain companies, the financing of other small, medium-size and niche operators would be assured.”

The survey revealed that respondents are now more confident of rate increases than they were three months previously. In the tanker sector, the number of respondents expecting rates to increase over the coming year was up from 30% to 35%. Charterers were alone in recording a fall (from 40% to 35%) in expectation of higher rates, against an 8 percentage-point increase, to 15%, in their numbers who thought that tanker rates would fall.

In the dry bulk sector, meanwhile, all the indicators pointed upward. There was a 15 percentage-point increase, from the all-time survey low of 23% to a more optimistic 38%, in the overall number of respondents who thought that dry bulk rates would rise over the next twelve months. Even charterers were looking up rather than down, with 44% of their number (the highest since August 2010) anticipating higher rates, as opposed to just 33% in the previous survey. In August 2011, jut 8% of charterers expected dry bulk rates to increase. The number of owners anticipating higher bulk rates, meanwhile, was up from 20% (another all-time low) to 35%, while 38% of managers thought that rates were on the way up, as opposed to 31% last time.

In the container ship market, 31% of respondents overall expected rates to increase over the next twelve months, as opposed to 23% last time. Charterers led the way, with a 13 percentage-point increase to 26%, which nevertheless still left them trailing managers (up from 23% to 30%), and owners, up 5 percentage-points to 28%. All these figures, however, were well down on those for one year ago. In February 2011, 56% of owners, 47% of managers, and 40% of charterers said they thought containers ship rates were likely to increase.

Moore Stephens shipping partner, Richard Greiner, says, “Nobody could accuse the shipping industry of being faint-hearted. Despite public confirmation that an increasing number of big industry names are in financial difficulty; despite there being too many ships to carry the cargo available to them for the foreseeable future; despite the prohibitive cost of fuel; and despite an ailing world economy, confidence in the shipping industry still increased slightly over the past three months. In fact, confidence today is higher than it was three years ago, in February 2009.

“Confidence is contagious, as is the lack of it. Although confidence in the shipping industry is significantly down compared to what it was when we launched our survey in May 2008, it is still holding up better than many had predicted. In part, that is due to a belief in the product and the service on offer. Shipping people know their industry. Although it is possible to carry anything from pins to elephants by other means of transportation, ships remain the only viable option for an overwhelming amount of the cargo that has to be carried on global routes. So, even if the supply-demand equation is currently out of kilter, there is both a need and a demand for shipping, and that is ultimately good for confidence.

“Almost without exception, owners, managers, charterers and brokers expect rates to go up over the coming twelve months, albeit starting from a chronically low base point. Improving rates may be too late for some, but could be the saviour of others as they seek to demonstrate to the banks and other investors that there is a genuine prospect of more money coming in.

“Shipping is not the only industry which has lost some of its household names. There may be more casualties to come. But higher rates are what is needed, particularly in an industry which, historically, has been accused of under-selling itself. Respondents to our survey this time exhibited a reduced appetite for finding money to spend on new investments over the coming year, but that may change if there is more money to spend – particularly if the cost of borrowing comes down.

“Meanwhile, there have been encouraging signs in the past couple of months in connection with efforts to address the worldwide economic downturn. Europe’s plan for bailing out Greece may be more of a short-term palliative than a long-term solution, and there remain serious doubts about other euro economies such as those of Italy, Portugal and Spain. But it is a start, and one that coincides with indications that the beginnings of a recovery may be under way in the US economy.

“Shipping has a long way to go before it returns to the rude health which made it such an attractive investment opportunity for so many just a few years ago. Given the way that environmental and safety regulations are driving up the cost of operating in today’s industry, it is unlikely to attract, for the foreseeable future, those looking to make a quick killing before exiting the market. They will not be missed. Shipping prides itself on its competitiveness, but the last thing it needs at the moment is more transient competition.

“Sometimes, the circulation of confidence is better than the circulation of money. The shipping industry is managing to maintain the former, but will need more of the latter in order to take the next step towards recovery.”

The Moore Stephens Shipping Confidence Survey includes responses from key players worldwide in the international shipping industry to a targeted, web-based survey by the Moore Stephens Shipping Industry Group. Responses were received from owners, charterers, brokers, advisers, managers and others. Editors can apply for a copy of the survey by emailing chris@merlinco.com

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 636 offices of independent member firms in 100 countries, employing 21,197 people and generating revenues in 2011 of $2.3 billion. www.moorestephens.co.uk

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