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

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 reports small decline in shipping confidence

Overall confidence levels in the shipping industry fell in the three months to November 2015, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens.

The average confidence level expressed by respondents in the markets in which they operate was 5.6 on a scale of 1 (low) to 10 (high). This compares to the 5.9 recorded in August 2015. The survey was launched in May 2008 with a confidence rating of 6.8.

All main categories of respondent recorded a fall in confidence this time, most notably charterers (down from 6.5 to 5.5). The confidence of managers was down from 6.4 to 5.8, that of brokers from 5.2 to 4.6, and that of owners from 5.8 to 5.7. Geographically, confidence was up in Asia, from 5.8 to 6.0, but down in Europe from 5.9 to 5.4, and in North America from 6.3 to 5.7.

Many respondents expressed continuing concern about overtonnaging and excess shipbuilding capacity. One observed, “The over-ordering of ships by investment funds, together with the huge shipbuilding capacity created by China, are not conducive to an orderly market, with the result that shipping investments remain very risky.” Another noted, “As a result of excess shipbuilding capacity and the low cost of finance, shipping markets have been suffering from over-supply for years. We can only hope for strong growth in demand to improve the situation.” The cost of regulatory compliance, meanwhile, was referenced by a number of respondents, with one commenting, “Environmental regulations will continue to drive costs and uncertainty.”

Looking ahead, one respondent said, “2016 and 2017 are going to be tough,” while another remarked, “Unless and until the global economy starts to improve, things are unlikely to change significantly.” Elsewhere, however, it was noted, “Major economies are stabilising and improving, so global trade will respond, which will lead to an improvement in the shipping markets.” In similar vein, another respondent said, “Shipping will always be a major part of world business, and will retain its importance as a result of recent political developments.”

A number of respondents commented on the effect of current low oil prices, with one emphasising, “The precipitous fall in oil prices has poured cold water over LNG-fuelled ship design. While the application of LNG makes sense from an environmental point of view, the additional capital expenditure is not justified unless oil prices go up to previous levels.”

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 5.3 to 5.2. Charterers, managers and brokers were less confident in this regard than they were three months ago, but the confidence of owners was up, from 5.5 to 5.7. One respondent said, “The sooner funds that have no clue how shipping is run leave the market, the better. Shipping should be run by shipowners and not fund managers.” Elsewhere it was noted, “A lot of shipowners are like investors in the stock market. Even though common sense tells them they may be making a bad investment, they would rather take the risk than miss out on a possible upturn in the market.” Yet another respondent said, “Smart owners wait until rates are low and buy used ships at low prices.”

The number of respondents who expected finance costs to increase over the next 12 months was down by one percentage point on last time, to 47 %. The number of owners anticipating dearer finance fell by 18 percentage points to 35 %, but the number of charterers of like mind rose to 67 %, from 50 % previously. One respondent said, “We need a more realistic approach from those banks which are helping to keep zombie companies afloat.”

Demand trends, competition and port congestion featured as the top three factors cited by respondents as those likely to influence performance most significantly over the coming 12 months. The numbers were down by four percentage points (to 21 %) for competition, which was pushed into second place by demand trends, where there was a one percentage point increase, to 24 %, in the figures. Port congestion, up 15 percentage points to a new survey high of 17 %, featured in third place, followed by finance costs, in respect of which there was a four percentage point drop to 14 %. Regulation (up five percentage points to 9 %) featured in fifth place, followed by operating costs (down five percentage points to 6 %). Fuel costs featured as a significant factor for just 4 % of respondents, compared to a survey high of 16 % in May 2011.

One respondent said, “Excessive regulation makes control of costs even more difficult. Furthermore, what is the point of creating rules when international authorities cannot agree how to apply them, such as in the case of ballast water management?”

There was a fall in the number of respondents anticipating higher freight rates in the tanker, dry bulk and container ship sectors compared to the figures for August 2015. The net sentiment was nevertheless positive (+7) in the tanker market and in the dry bulk sector (+16), although negative (-5) for container ships.

One respondent said, “Many tanker owners are guided more by hope than by economics. When statistics indicate a tonnage shortage in two years’ time, they order ships now in the hope that freight rates will be higher once the ships have been built. But if other owners do the same, overcapacity will result in low rates and a fall in vessel values – a lose-lose situation.”

Elsewhere, it was noted, “Overall confidence in the state of the dry bulk market is currently very low, and any hope of the start of a recovery is at least 12 months away.” In the container ship sector, meanwhile,
one respondent commented, “Many owners of container ships seem to order new tonnage whether it makes economic sense or not, just to maintain market share.”

Moore Stephens shipping partner Richard Greiner says, “The inherent volatility of the shipping industry is part of its appeal to investors, for whom there is seldom any reward without risk. But confidence historically fluctuates more in a volatile market than in a stable one, and shipping is nothing but volatile at the moment. The small drop in industry confidence levels over the three months to end-November is therefore not a great surprise.

“Global unrest in general, and in particular the crisis involving Syria, does nothing to help confidence in industries such as shipping, which operate across international borders. Neither does the migrant crisis in Europe, which has escalated significantly in recent months, nor the Paris bombings. Shipping must expect to suffer the downside of such incidents just as, in better times, it can expect to benefit from positive geopolitical changes.

“Informed awareness and the ability to react in a timely manner are the best defence against external influences on the industry. But what of those other inhibitors of shipping confidence, which might be said to be of the industry’s own making? Firstly, there is the over-arching problem of excess tonnage. There are too many ships to carry the available cargoes. Doubts also persist about the level of newbuilding orders at a time when the market does not look to be in a good position to sustain them.

“Only increased ship recycling and rationalisation of business plans can effectively address these issues, and the need to take a proactive approach is borne out by the current state of the markets. The tanker market is producing comparatively good earnings at the moment, but its fortunes are too closely linked to the price of oil for anybody to accurately predict how long this will last. Expectations of improved rates over the next 12 months in the three main tonnage categories covered by the survey are down. In the case of the dry bulk sector, such expectations are at their lowest since August 2012, while in the container ship market one has to go back to October 2008 to find a lower figure. Indeed, our respondents recorded an overall negative sentiment in respect of the container ship market.

“This paints a rather austere picture for the immediate future of the industry, which is also facing the burgeoning challenge of funding regulatory compliance with the imminent entry into force of the Ballast Water Management convention. But it is by no means all bad news. Operating costs fell in both 2013 and 2014, which is evidence of the application of a measure of control which shipping has not been accustomed to seeing in recent years. Meanwhile, 50 % of those shipowners who responded to our confidence survey rated at 7 out of 10 or higher the prospect of making a major investment over the next 12 months. Owners were also much more confident than they were three months ago that ship finance was going to be cheaper over the coming 12 months.

“Well-informed owners and investors are not in the habit of throwing money away on lost causes. Shipping remains a good business to be in, its continued existence assured by its singular capabilities. The outlook remains volatile, but exciting.”

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

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 reaches highest level for two and a half years

Overall confidence levels in the shipping industry rose to their highest level for two and a half years in the three months ended May 2013, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens. The survey produced evidence of increased enthusiasm for new investment, although doubts persisted about the availability of bank finance. Fuelled by ongoing concern about a surfeit of tonnage on the market, freight rates in the dry bulk sector in particular were expected to come under more pressure over the next twelve months, although the outlook for the tanker markets looked more encouraging.

In May 2013, 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), compared to the figure of 5.8 recorded in the previous survey in February 2013. This is the highest figure since the 6.0 recorded in November 2010. The survey was launched in May 2008 with a confidence rating of 6.8. The confidence rating for owners was unchanged at 5.7, while that for brokers was up from 5.6 to 5.9, the highest figure since November 2010. Confidence on the part of managers and charterers, however, was down to 6.0 and 5.5 respectively, from 6.2 and 6.0 in February 2013. Geographically, confidence in Asia was up (from 5.6 to 5.8), unchanged in Europe at 5.8, and down in North America from 6.1 to 6.0

A number of respondents felt that there were positive signs that a recovery was under way. One said, “The shipping market is dynamic in nature, and we are starting to see signs of exponential growth,” while another predicted with great confidence, “The shipping markets will continue growing over the next fifteen years!” Elsewhere the predictions were less expansive, ranging from, “The market will recover in 2014,” to, “Overall, we believe that 2013 will end up better than last year, and 2014 will show further improvement, even if some niche markets may not be able to maintain their current rate of growth.” Other respondents, meanwhile, continued to express concern about a surfeit of tonnage in the market. One said, “As soon as there is any hint of a sector with positive potential, owners run to the yards and start ordering” while another noted, “New orders need to be halted for two years in order to correct the over-supply situation.”

Elsewhere it was noted, “There are still too many owners ordering new vessels which will hit the water in the next two years. If we are to believe estimates that the world’s shipyards turned out five times as much tonnage in 2012 as they did in 2005, it is clear that the problems are far from being solved.” Another respondent commented, “Newbuildings from China are still being delivered, and that will doubtless continue because the yards are major employers of local labour and huge consumers of indigenous steel and other raw materials.” And it was not just China which was referenced in this context, with one respondent pointing out, “There are competitive prices on offer for newbuilding orders, even from Japanese shipyards.” Another respondent predicted a continuing over-supply of tonnage in all sectors except those below 20,000 dwt, adding, “Too many larger ships continue to be ordered and delivered due to perceived low newbuilding costs, but these deals do not come close to making sense based on current market returns.”

Despite significant increases in scrapping levels in the past eighteen months, a number of respondents felt that much more still needed to be done. “The level of new ordering is alarming,” said one, “particularly as some reports suggest that rates of scrapping may now be slowing down again. At current levels the fleet will continue expanding into 2014 and 2015.” Another respondent said, “The industry faces significant increased costs in terms of meeting new regulations over the next few years and, given the lack of available finance, this may accelerate the scrapping of older vessels, particularly those coming up for their fourth survey, but this is unlikely to be sufficient to get the industry out of the over-supply hole it finds itself in.”  

One respondent said,  “We are increasingly pessimistic about the ability of smaller, privately owned European-based shipowners to compete in the main non-niche markets due to lack of scale and financial muscle, as well as evidence of protectionist practices which render certain trades inaccessible.” Elsewhere it was noted, “We have some way to go before we can expect to see any improvement in freight rates, especially if a new wave of cheap, fuel-efficient ships is ordered for 2015 onwards.”

Regulatory demands featured in the responses from a number of respondents, with one commenting, “The increasing burden of regulation, and the desire on the part of Brussels to be more proactive in its control of what is a global business, is likely to lead to a large number of marginal players exiting the market completely. Whether this will be sufficient to accelerate a return to a better supply/demand balance remains to be seen.” 

The cost and availability of bank finance was uppermost in the minds of a number of respondents. “If the banks do not improve their funding resources,” said one, “shipping will remain depressed for years to come.” Another commented, “The banks are not willing to invest in older ships.” This was a view echoed by the respondent who remarked, “We have looked at several secondhand ship purchase deals which appear to be good enough to replace older tonnage, but our main lending bank is still not willing to finance them, even with high un-mortgaged equity values within our business able to back the loans.” Elsewhere it was noted, “The banks are behaving illogically, and their lack of support frustrates the shipping industry.”

Generally speaking, respondents were more positive than for some time with regard to the state of global and national economies. One said, “The US economy is slowly starting to recover, which will impact positively on demand and on freight rates, plus the likelihood of interest rates remaining unchanged for a few more years will serve to stimulate the market.”

The likelihood of respondents making a major investment or significant development over the next twelve months was up marginally on the previous survey, on a scale of 1 to 10, from 5.5 to 5.6 – the highest level since the 5.7 recorded in February 2011. Owners (down two points to 5.7) were the only category of main respondent to show a fall-off in expectation in this regard. Both charterers and managers, meanwhile, recorded an increased expectation (each from 5.7 to 6.0) of making new investments over the coming year, a view shared also by brokers (up from 4.8 to 5.2).

The percentage of owners who assessed the likelihood of their making an investment at 7.0 out of 10.0 or higher was up by one percentage point to 45 per cent, while the number of charterers who thought likewise was also up by the same margin, from 46 per cent to 47 per cent. Meanwhile, 45 per cent of managers rated the likelihood of their making a new investment over the next twelve months at 7.0 out of 10.0, or higher.

Geographically, expectation levels of major investments were up in all the main geographical areas covered by the survey – in Asia, from 5.4 to 5.5, in Europe from 5.5 to 5.6 (their highest level since February 2011), and in North America from 4.9 to 5.9. One respondent noted, “Regulatory demands on shipping are such that the industry cannot cope with large investments in a financially tight market.  Trust in shipping in general is low, given the market sentiment.

Demand trends, competition and finance costs once again featured as the top three factors cited by respondents overall as those likely to influence performance most significantly over the coming twelve months. The overall numbers for demand trends were down one percentage point to 22 per cent, static for competition at 20 per cent, and unchanged also in the case of finance costs at 16 per cent. Tonnage supply (down one percentage point to 12 per cent) featured in fourth place, ahead of operating costs (up two percentage points to 11 per cent), and fuel costs, which were one percentage point down on last time at 10 per cent.

Demand trends remained the number one performance-affecting factor for owners, although down by one percentage point to 21 per cent. Competition featured in second place at 18 per cent (up from 15 per cent last time), followed by finance costs, up one percentage point to 17 per cent. Tonnage supply, having featured in second place in terms of owners’ priorities last time, was down by two percentage points to 16 per cent. For managers, meanwhile, competition, although down from 20 per cent to 18 per cent, still featured in equal first place with demand trends (down one percentage point to 18 per cent), followed by finance costs, down from 17 per cent to 16 per cent. For charterers, demand trends, while down by five percentage points to 24 per cent, took over first place from competition, which was down from 31 per cent to 17 per cent. Finance costs featured in third place, with 16 per cent.

Geographically, demand trends were the most significant factor for respondents in both Asia and Europe (up by three percentage points in Asia to 23 per cent but down in Europe from 24 per cent to 22 per cent.) Competition and finance costs, in that order, made up the top three performance-affecting factors in both Asia and Europe. In North America, meanwhile, competition featured in first place (up eight percentage points to 28 per cent), followed by demand trends, where there was a fall from 38 per cent to 26 per cent,  and operating costs, at 11 per cent. Operating costs were referenced by a number of respondents. One said, “Owners who are in a position to control fuel costs by operating very efficient vessels, with highly skilled crews, will be at a clear advantage,” while another expected “further shortages of well-qualified and experienced crew, and an increase in their salary demands.”

There was a three percentage-point fall (from 40 per cent to 37 per cent) in the number of respondents overall who expected finance costs to increase over the next twelve months. This is the lowest figure in the life of the survey to date. The number of respondents expecting finance costs to come down, meanwhile, reached its highest figure (11 per cent) since November 2010. Owners were the only main category to record a fall in the numbers of respondents expecting an increase in finance costs (down from 37 per cent to 32 per cent). The figure for charterers was unchanged at 50 per cent, while for managers and brokers it was up 3 and 6 percentage points respectively, to 44 per cent and 38 per cent. The number of respondents in Asia anticipating an increase in finance costs was up by 2 percentage points to 40 per cent compared to last time, but the corresponding figure for Europe was down from 39 per cent to 32 per cent. In North America, meanwhile, 52 per cent of respondents thought that finance costs were likely to rise, compared to 42 per cent previously.

While the majority of respondents bemoaned the lack of available, affordable finance, one respondent noted, “Shipowners appear to be resorting more frequently to bond financing, and it seems that these investors are looking through rose-tinted spectacles when it comes to assessing the future and are prepared to support owners in this respect.”

Turning to freight rates, it was the tanker markets this time which generated the most positive comments.

The number of respondents overall who expressed an increased expectation of higher rates in the tanker sector over the next twelve months was up by two percentage points to 37 per cent – just one percentage point below the figure recorded when the survey was launched in May 2008, but some way short of the survey high of 50 per cent posted in May 2010. Owners (up five percentage points to 41 per cent) led the way in terms of increased expectations of better rates, while charterers unsurprisingly set their sights much lower, at an unchanged 29 per cent. The number of managers expecting improved rates was meanwhile down by one percentage point to 31 per cent. Geographically, the prospects for increased tanker rates were deemed lower this time by respondents in Asia (down from 33 per cent to 31 per cent) and in North America (down by 23 percentage points to 24 per cent), but higher in Europe, up from 36 per cent to 40 per cent.

In the dry bulk sector, meanwhile, there was a 10 percentage-point fall, from the highest figure in the life of the survey three months ago to 40 per cent this time, in the overall numbers of those anticipating rate increases. All the indicators were down – in the case of owners from 50 per cent to 43 per cent, managers (52 per cent to 36 per cent), charterers (60 per cent to 48 per cent), and brokers (44 per cent to 32 per cent). It was the same story from a geographical perspective. In Asia, expectations of higher dry bulk rates fell from 52 per cent to 33 per cent, in Europe from 51 per cent to 44 per cent, and in North America from 65 per cent to 35 per cent. One respondent said, “The dry bulk market is in crisis and will remain so in the small-to-medium size sectors for at least two more years due to overbuilding.” Another noted, “The dry bulk market is structurally unhealthy due to the massive overbuilding of vessels.” Others were more optimistic however, with one claiming to be hopeful that dry bulk rates will soon improve due to an improved balance between supply and demand.

In the container ship market, there was an eight percentage-point fall, to 26 per cent, in the overall numbers expecting rates to go up. Indeed, expectation levels in relation to rate increases were down across all categories of respondent, most notably in the case of brokers (by 25 percentage points to 19 per cent). Meanwhile, 26 per cent of owners (compared to 36 per cent last time), 28 per cent of managers (down 5 percentage points on last time), and 38 per cent of charterers (down from 47 per cent last time) expected container ship rates to rise in the next twelve months.

Geographically, expectations of improved container ship rates were unchanged in Asia at 24 per cent, just one percentage point up on the numbers in that part of the world who are expecting container ship rates to go down over the next twelve months. The numbers anticipating higher rates were also down in Europe, from 38 per cent to 29 per cent. In North America, meanwhile, the 39 per cent of respondents expecting container ships rates to fall over the coming year  was more than double the number (17 per cent) who though they would increase.

One respondent said, “In the container ship sector, the long-haul market sentiment is very bleak, with continued deliveries of mega tonnage and ongoing weak demand in the main western trades.” Another claimed, “The container ship fleet will grow by eleven per cent this year. Everybody seems to think that ever bigger ships are beautiful.”

Moore Stephens shipping partner, Richard Greiner, says, “For the third successive quarter, we have seen a small increase in confidence. This encourages the belief that we are witnessing the start of a sustainable recovery, although some difficult issues remain to be resolved.

“Despite increased scrapping, it is clear that there are still too many ships on the market. For as long as that situation persists, the freight markets will struggle to bounce back. Although the tanker market is looking healthier than it has for some time, the dry bulk trades in particular seem to be suffering from an over-supply of tonnage.

“Owners’ appetite for new vessels has not, it seems, been terminally affected by five very difficult years for the shipping industry. Some reports suggest that current newbuilding business is almost one thousand per cent up on last year, with Greek owners alone having reportedly ordered almost twice as many ships in the first four months of 2013 as they did in the corresponding period last year. This is not a complete surprise.

Our survey revealed evidence of an increased enthusiasm for investment, and the history of shipping confirms that it is an industry which is not reluctant to spend money.

“Increased newbuilding activity is also somewhat inevitable, not least because of the strong state support which governments in the Far East are providing to their strategically important shipbuilding industries. Neither is it a bad thing. Every industry needs new investment to survive, and if that is coupled with regulatory and environmental compliance – for example, in the shape of eco-friendly ships – then so much the better.

“If pulling the plug on newbuilding activity is not the way to resolve shipping’s problems, the answer must lie with addressing the issues which seem to militate against solutions built on new investment. We need more scrapping, for example, and fewer proposals such as the one currently before the European Parliament to ban the beaching of vessels for demolition. We need a more innovative approach to securing finance, embracing everything from bond financing to leasing, as well as the ability to convince potential investors of the credibility of business plans. We need a more concerted focus on risk management, which is not as well developed in shipping as it is in many other industries. And we need early identification of the need for restructuring, and awareness of the options available in that connection.

“Shipping is in reasonably good shape, given the problems it is facing. Indeed, it is difficult to think of another industry which is so capital-intensive in nature, so reliant on skilled personnel, and so heavily impacted by competition, politics, risk, protectionism, and regulation, yet able to remain optimistic in the teeth of a global financial downturn. Three months is a long time in shipping, but it is to be hoped that our next survey will complete a full twelve months of improving confidence. Shipping is an industry in which long-term investments have tended to bring long-term rewards. As such, it is worthy of a long-term outlook.” 

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 624 offices of independent member firms in over 100 countries, employing 21,224 people and generating revenues in 2012 of $2.3 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