Concern over trade wars impacts shipping confidence

Confidence in the shipping industry has fallen marginally over the past three months, largely as a result of ongoing concern over trade wars and increased regulation, according to the latest Shipping Confidence Survey from leading shipping adviser and accountant BDO.

The average confidence level in the three months to May 2019 was 6.1 out of a possible maximum of 10.0. This is slightly down on the figure of 6.2 recorded in February 2019.

Confidence was up in Asia, from 5.8 to 6.0, and in North America, from 5.6 to 6.4. In Europe, meanwhile, there was a drop in overall confidence levels from 6.3 to 6.1.

The chartering sector continues to be the most volatile in terms of respondent confidence, with ratings varying between 4.7 and 7.7 during the past two years. This time, the confidence level was up to 6.2 from 6.0 three months ago. The ratings for owners and managers, meanwhile, were unchanged at 6.3 and 5.8 respectively, while the rating for brokers was down from 5.9 to 5.7.

The survey was launched in May 2008 with an overall rating for all respondents of 6.8 out of 10.0.

According to the BDO quarterly survey, the likelihood of respondents making a major investment or significant development over the coming year was up from 5.3 to 5.4 out of 10.0. Owners’ confidence in this regard was up from 5.4 to 6.3, while the rating for charterers was 5.6 compared to the survey high of 7.3 recorded last time. The confidence of managers and brokers in this category was also down, from 5.6 to 4.8 and from 4.9 to 3.9 respectively. Expectations were up in Asia, from 5.2 to 5.5, and in Europe, from 5.3 to 5.4.

The number of respondents who expected finance costs to increase over the coming year was unchanged at 48%. The figures for owners and brokers were down, but up in the case of charterers and managers.

Demand trends were cited by 26% of respondents as the factor most likely to influence performance over the next 12 months. Competition (19%) and finance costs (13%) featured in second and third place respectively in this context.

The number of respondents expecting higher freight rates over the next 12 months in the tanker market was up by 4 percentage points on the previous survey to 55%, with charterers (75%) leading the way. In the dry bulk sector, expectations of rate increases were down overall from 52% to 48%, with charterers the only category recording an increase in expectation levels. The numbers expecting higher container ship rates, meanwhile, rose by 9 percentage points to 35%. Net rate sentiment was positive in all three tonnage categories and noticeably improved on the last quarter for container ships.

When asked to estimate the level they expected the Baltic Dry Index (BDI) to reach in 12 months’ time, 50% of respondents (compared to 36 % 12 months ago) anticipated a figure of between 1000 and 1499, while 22% (42% last time) put the likely level at between 1500 and 1999. “One could be more bullish about the BDI if there was less global tension around,” said one respondent.

Richard Greiner, Partner, Shipping & Transport at BDO, says, “A small dip in confidence is not surprising given the recent volatility generated by the US-China trade wars, the heightened tension in the Arabian Gulf, the failure to conclude Brexit negotiations, and general political instability in many parts of the world. Markets love volatility, but it can have an adverse effect on confidence.

“Trade wars certainly formed the over-arching theme for this quarter, but they are not the only recurring topic. The cost and technical implications of complying with existing and incipient regulation was referenced on a number of occasions, typified by the respondent who noted that the high level of regulation “makes it extremely difficult to make a profit”.

“Despite the challenges the industry is facing, there are a number of positive indicators. New technology is making shipping more attractive to investors, and will moreover act as a trigger to accelerate the pace and extent of recycling. Higher freight rates should logically follow, and those who hold their nerve will ultimately benefit.”

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 says ship operating costs are set to increase for 2017 and 2018

Vessel operating costs are expected to rise in both 2017 and 2018, according to the latest survey by international account and shipping consultant Moore Stephens. Repairs & maintenance and spares are the cost categories which are likely to increase most significantly in each of the two years.

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 likely to rise by 2.1% in 2017 and by 2.4% in 2018.

The cost of repairs & maintenance is expected to increase by 2.0% in both 2017 and 2018, while expenditure on spares is predicted to rise by 2.0% in 2017 and by 1.9% in 2018. Drydocking expenditure, meanwhile, is expected to increase by 1.7% and 1.8% in 2017 and 2018 respectively.

The survey revealed that the outlay on crew wages is expected to increase by 1.7% in each of the years under review, with other crew costs thought likely to go up by 1.6% in 2017 and 1.5% in 2018.

The increase in expenditure for lubricants is expected to be 1.6% in both 2017 and 2018. Meanwhile, projected increases in stores are 1.5% and 1.7% in the two years under review, while management fees are expected to rise by 0.7% and 1.0% in 2017 and 2018 respectively.

The cost of hull and machinery insurance is predicted to rise by 0.5% and 1.0% in 2017 and 2018 respectively, while for P&I insurance the projected increases are 0.7% and 1.1% respectively.

The predicted overall cost increases were highest in the offshore sector, where they averaged 4.8% and 3.8% respectively for 2017 and 2018. By way of contrast, predicted cost increases in the container ship sector were just 1.1% and 0.8% for the corresponding years.

Operating costs for bulk carriers, meanwhile, are expected to rise by 1.9% in 2017, and by 2.4% the following year, while the corresponding figures for tankers are 2.1% and 2.7%.

Respondents to the survey highlighted various areas of concern likely to result in increased operating costs over the next two years. Crew costs were high on the list, with one respondent noting, “Crew costs are 60% of our operating expenditure, and weigh heavily when there is high demand for – but a limited supply of – manpower and when employers are required to meet increasingly onerous requirements.” Another noted, “Crew and insurance related expenses are the two major factors in our operating expenses but, while we expect insurance costs to fall over the next two years, we anticipate that crew costs will remain the same.” Another still said, “Most shipping companies, but especially those operating tankers and chemical and gas carries, are facing the prospect of increases in costs through 2018 for hiring qualified crew.”

The increasing cost of regulatory compliance was referenced by a number of respondents, one of whom said, “New regulations are certainly going to have a major impact on our operating costs.” Elsewhere it was noted, “Retrofitting vessels with technology which has not been fully vetted for compliance with existing and new regulation can destroy cashflow.”

One respondent in the offshore sector, meanwhile, emphasised, “There is a constant trend in terms of charter hire, whereby earnings are gradually going down while expenses under different heads are following an upward trend.”

Another respondent commented, “We do not expect income to increase significantly over the next 12 months, which in turn will limit the available budget for operating expenses.” Other respondents, too, expressed doubts about factors which are likely to constrain their earning capacity at a time when operating costs are increasing. Areas of concern included such familiar items as continued tonnage overcapacity in some trades and the cost of finance.

One respondent said, “Excess capacity, and the amalgamation and acquisition of existing operators and assets, could lead to a market which is shared by a small number of operators.” Another complained, “Over-supply of tonnage, most notably that built in China, has caused a significant fall in charter hire.” Other, more general, comments, included, “Markets across the board will be nervous, with sharp ups and downs,” and: “Prospects look gloomy, with no clear horizon in sight.”

Respondents were asked to identify the three factors that would most affect operating costs over the next 12 months., Overall, 21% of respondents (similar to last year’s survey) identified finance costs as the most significant factor, followed by crew supply, which stood at 19% and displaced competition in second place. Competition itself was down from 19% to 15% and from second to equal third place, which it shared with the cost of new regulations, which was included in the survey for the first time. Demand trends and raw material costs, meanwhile, shared fourth place at 10%, with labour costs fifth at 9%, all significantly down on the figures in last year’s survey, which were respectively 17%, 11% and 13%.

Richard Greiner, Moore Stephens Partner, Shipping & Transport, says, “The predicted 2.1% and 2.4% increases in operating costs for 2017 and 2018 respectively compare to an average fall in actual operating costs in 2016 of 1.1% across all main ship types recorded in the recent Moore Stephens OpCost study.

“One year ago, expectations of operating cost increases in 2017 averaged 2.5%, so the fall now in that expectation to 2.1% must be regarded as good news. Predicted increases in operating expenditure are a matter of concern for any industry, and particularly one such as shipping in which a range of factors have conjoined in recent years to inhibit (and, in some cases, eradicate) profit margins. But shipping has seen a lot worse. If it does transpire that operating costs rise by 2.4% in 2018, for example, that will still be less than one-sixth of the actual operating cost increases absorbed by the industry ten years previously.

“It is significant that, for the first time, new regulations were included in the list of factors which respondents could cite as most likely to influence the level of operating costs over the next 12 months. It was even more significant, perhaps, that 15% of respondents did indeed identify the cost of regulatory compliance as a major consideration when weighing future operating cost increases. The Ballast Water Management convention, now with an extended implementation window, is still potentially the most expensive item on the menu, but by no means the only one. Tellingly, one respondent referred to new regulations which ‘most of the time are unclear and indefinite.’

“The fact that repairs & maintenance and spares emerged as the items with the largest projected cost increases in both 2017 and 2018 was perhaps unsurprising in that they are two items of expenditure on which owners and operators might conceivably have economised or delayed in previous years, and such economies cannot be sustained over longer periods without impacting safety.

“Elsewhere, there were some interesting predicted cost increases in the individual market sectors. The offshore industry, for example, is predicted to be facing increases of 3.5% in crew wages for 2018, compared to the 1.4% predicted for bulkers and the 0.7% for container ships. Indeed, the offshore sector is facing the biggest increases in operating costs in the next two years in every category of expenditure covered by the survey.

“Offshore is going to be a challenging sector for operators and investors alike for some time to come, and the survey reveals exactly why a year can be a long time in shipping. In last year’s Future Operating Costs report, the container ship sector led the way in terms of the highest predicted overall cost increases for 2016 and 2017, with the offshore sector returning the lowest figures. Now, the position is completely reversed, with container ships expected to have to bear increased costs in 2017 which are little more than one-fifth of those expected to be encountered by offshore operators.

“It was evident from the responses to our survey that the shipping sector is concerned about the conflation of higher operating costs and the potential reduction in revenue earning opportunities which it faces over the next two years. As one respondent succinctly observed: “The problem with shipping is not so much costs, but income.” There is certainly some truth in that. Shipping has gone through – and is still navigating – a prolonged downturn. It is a cyclical industry, but cycles imply movement both up and down, and there has not been enough of the former in recent years. The cyclical nature of the industry also increases volatility in the likes of charter rates and vessel values which may adversely affect earnings.

“There is however, evidence to support the view that an appetite still exists for ongoing investment from both traditional and external investors, supported by a number of recent indicators of positive sentiment. This is in an industry whose attractions currently include low prices and comparatively limited ordering of new tonnage. That is good news, because it is such investment that shipping will need if it is to meet the rising cost of operating in the industry.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 626 offices of independent member firms in 108 countries, employing 27,997 people and generating revenues in 2016 of $2.7 billion. www.moorestephens.co.uk


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

Optimistic charterers help boost shipping confidence to 15-month high

Shipping confidence improved for the third successive quarter in the three months to end-November 2016, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens.

In November 2016, the average confidence level expressed by respondents was 5.6 out of 10.0, equalling the highest rating since August 2015. All main categories of respondent were more confident than in August 2016, when the overall rating was 5.4. Charterers’ confidence this time increased by 2.0 points, to 6.8, the highest figure in the life of the survey for such respondents. The confidence of owners was up from 5.3 to 5.4, of brokers from 4.5 to 5.6, and of managers from 6.0 to 6.4. The survey was launched in May 2008 with an overall confidence rating of 6.8.

Confidence was up in Asia, from 5.5 to 5.7, in Europe from 5.2 to 5.4, and in North America from 5.8 to 5.9.

A number of respondents felt that the bottom of the cycle had been reached and that the only way was up. Particular concern was expressed about overtonnaging, insufficient recycling, and the cost of regulatory compliance. One respondent noted, “The oversupply of tonnage will cease when the banks write down bad loans and force owners to sell for scrap,” while another said, “The weak or unlucky will fold or be gobbled up, while the strong or the lucky will grow and succeed.”

The likelihood of respondents making a major investment or significant development over the next 12 months was unchanged, at 4.9 out of 10.0. Charterers’ confidence in this regard was up from 5.0 to 6.4, equalling its highest figure since August 2013. Owners’ expectations were also up, from 4.8 to 5.0, but those of managers and brokers were down, from 5.3 to 5.2 and from 4.1 to 3.8 respectively. According to one respondent, “It is hard to see how major investment to meet environmental regulations can be justified in the current climate.”

The number of respondents expecting finance costs to increase over the coming year rose from 35% to 53%, the highest level for five years. Owners’ expectations in this regard rose from 31% to 58%, their highest level since May 2011. The figures for brokers and managers were also up, from 47% to 53% and from 30% to 52%, respectively. Charterers were alone in not anticipating any increase in finance costs. “Major investment will be required over the next few years to meet increasingly stringent environmental regulations,” said one respondent, “at a time when earnings are on the floor and bank finance is hard to come by.”

Competition is expected to influence performance most significantly over the next 12 months, just ahead of demand trends, followed by finance costs and tonnage supply. One respondent said, “If demand remains weak, we don’t anticipate any improvement in the shipping markets over the next five years, particularly for dry bulk cargoes.”

The number of respondents expecting higher rates in the tanker market over the next 12 months rose by ten percentage points to 33%, the highest figure since August 2015, while the number anticipating lower tanker rates fell from 37% to 24%. Meanwhile, there was a three percentage-point rise, to 41%, in the numbers anticipating higher rates in the dry bulk sector. In the container ship sector, the numbers expecting higher rates rose from 22% to 27%, but there was a five percentage-point increase, to 21%, in those anticipating lower rates. The net sentiment in the tanker markets was +9, while it was +31 in the dry bulk markets and +6 in the container ship trades.

In a stand-alone question, respondents were asked what they considered would be the most important source of funding for the installation of Ballast Water Management (BWM) systems by shipowners. Overall, on a weighted average basis, 21% of respondents felt that shipowner equity (shareholder funds) would provide the source of funding. Next came bank finance, at 19%, BWM system manufacturers (15%), shipyards (12%) and other non-bank finance (10%). One respondent said, “Financing BWM is almost impossible. Owners have no money for it.”

Richard Greiner, Moore Stephens Partner, Shipping & Transport, says, “This is the third successive increase in shipping confidence recorded by our survey. So despite overtonnaging, weak freight rates, declining demand, insufficient recycling, Brexit, Syria, Trump, despite everything, shipping is still looking up, rather than down. This is not to deny the reality of today’s difficult market, or the sluggish economic climate. But it does say much for the strength of shipping’s backbone and the quality of its mettle.

“Those who can point to a long history in shipping will be better placed to gauge the severity and longevity of the current downturn than those with a shorter pedigree in the industry. But both will need access to finance and to other resources in order to meet the challenges which lie ahead. Not the least of these is the ongoing regulatory environmental compliance programme, even if implementation of the BWM convention may be caveated with potential delay and amendment for a little while longer.

“Many of our respondents felt that things can only get better. They are probably right. But for that to happen, freight rates will have to go up. Perhaps it is safer to say for the moment that, if we want things to stay as they are, things will have to change.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 657 offices of independent member firms in 106 countries, employing 27,613 people and generating revenues in 2015 of $2.7 billion. www.moorestephens.co.uk.


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

Moore Stephens reports small rise in shipping confidence

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

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

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

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

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

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

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

Demand trends, competition and tonnage supply featured again as the top three factors cited by respondents as those likely to influence performance most significantly over the coming 12 months. Demand trends, which were actually down by two percentage points to 24 %, remained in first place, with competition (up 2 percentage points to 23 %) in second place. Tonnage supply, up one percentage point to 16 %, occupied third place, one percentage point ahead of finance costs. Operating costs, down by 3 percentage points to 9 %, featured in fifth place, ahead of regulation (5 %) and fuel costs (4 %).

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

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

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

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

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

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

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

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

“In general terms, the continuing advent of new technology and the relentless march of regulation are intended to make shipping safer, cleaner, more accountable and more competitive - an environment that would be a natural fit for well-founded operators with sound business plans and long-term aspirations. But the cost of achieving those aims is high, and ultimately much will depend on the industry’s ability to rationalise capacity and thereby push up freight rates.”
Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 657 offices of independent member firms in 106 countries, employing 27,613 people and generating revenues in 2015 of $2.7 billion.
www.moorestephens.co.uk

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

Moore Stephens says shipping services providers should explore private equity funding

International accountant and shipping adviser Moore Stephens says the time is right for shipping to seek financial backing from the private equity sector to help fund investment in innovative products and services designed to keep the industry competitive and achieve regulatory compliance.

Alison Jarabo of maritime efficiency specialist Fathom Shipping told the recent Moore Stephens Opportunities in Shipping Services seminar in London that regulation and the need to control costs were the two main factors driving the growth of technology in the shipping industry. She emphasised, however, that, “Technology and innovation may abound but, without end-users able to access the finance to deploy, the market will fail.”

Jarabo identified scrubber technology, ballast water treatment systems and ship performance management systems as some of the main technology opportunities in the industry today. She cited unreliability of technology, lack of in-service history, and lack of acceptable clear parameters as some of the potential barriers to uptake, but also noted that the shipping industry excels at anticipating changes in regulations, at the timely implementation of R&D initiatives, and at the adoption of consistent and coherent regulation on a global basis.

Moore Stephens shipping partner Richard Greiner says: “Although we have seen a partial return to the shipping sector by banks during the past twelve months or so, there is still a shortfall in available finance. This comes at a critical time for the industry, with significant investment required in technology and services to achieve compliance with environmental regulation and to maximise commercial performance.

“Shipping services providers who have developed the technology to meet these requirements need the financial resources to bring them to market. Similarly, end-users who have identified the technology solutions which are right for them need the funding to access and implement them.

“The shipping services market is currently attracting a lot of interest from private equity, not least because it is a highly fragmented sector with a wide range of business sizes. It is providing services to a tightly regulated industry in which a large number of developments are taking place. Private equity investors who have a firm grasp on the potential risks and rewards available in today’s shipping services sector could be a good match for well-founded shipping services and technology providers who have a clearly identified market for their products. Indeed, it could be argued that recent developments have created something of a perfect storm to bring the two together.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and insurance adviser. It 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 must adopt can-do attitude in 2015

International accountant and shipping adviser Moore Stephens says shipping needs to adopt a can-do attitude in order to successfully meet the challenges which are likely to come its way in 2015.

Moore Stephens shipping partner Richard Greiner says, “Shipping confidence started 2014 on a six-year high and ended it on a two-year low. It is difficult to predict with any certainty what the next 12 months will bring, beyond further uncertainty. To paraphrase an old adage, shipping goes into 2015 needing to accept the things it cannot change, to change the things it can change, and to make sure it understands the difference between the two.

“Top of the list of things which shipping cannot change is the relentless march of regulation. In 2015 this will assume still more onerous proportions with the inception of new regulations governing Emissions Control Areas, and a further step towards ratification of the BWT Convention.

“Overtonnaging, meanwhile, is top of the list of things which shipping can change. Accelerated scrapping is needed, together with an acknowledgement that there are already too many ships on the market and that, absent some form of rationalisation, freight rates will not pay the bills.

“One area where shipping can demonstrate that it knows the difference between what it can and cannot change is in its attitude to private equity. Does private equity not know what the rest of us know, or does it know something the rest of us do not? Rather than bemoaning the short-term commitment of private equity, shipping should be looking to tick the boxes which attract such investors.”

“Operating costs will go up in 2015, along with the cost of regulation, while it would be no surprise if oil prices were to go up faster than freight rates over the course of the year. Environmentalists will be happier with shipping. There will be increased interest in risk management, without which there will be still more newbuilding disputes of the type currently sitting on the desks of arbitrators, and more companies following the unhappy route into bankruptcy taken at the end of last year by OW Bunker.”

Greiner concludes, “Shipping embarks on a new year with confidence in a fragile state. The industry is volatile, and will be looking for improved political stability and a stronger global economy. But it should not underestimate its proven ability to endure throughout crises. The biggest danger may lie not in setting the targets too high and falling short, but in setting the targets too low and achieving them.”

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 667 offices of independent member firms in 105 countries, employing 27,081 people and generating revenues in 2013 of $2.7 billion. www.moorestephens.co.uk


For more information:
Richard Greiner
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
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Shipping confidence hits three-year high

Overall confidence levels in the shipping industry rose to their highest level for more than three years over the three-month period to November 2013, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens. There was encouraging news on freight rates, and evidence of an increased willingness to invest. But concern persists on overtonnaging, operating costs, and the cost of regulation.

In November 2013, the average confidence level expressed by respondents in the markets in which they operate was 6.1 on a scale of 1 (low) to 10 (high), compared to the 5.9 recorded in the previous survey in August 2013. This is the highest figure since the 6.2 recorded in August 2010. The survey was launched in May 2008 with a confidence rating of 6.8.

Despite the overall improvement in confidence, owners were the only category of individual respondent to post an increase this time, from 5.8 to 6.2, the highest figure recorded since May 2010. Confidence on the part of managers, however, was down from 6.2 to 6.1, while for charterers there was a drop from 6.3 to 5.7. Geographically, confidence was down in Asia (from 6.1 to 5.9) but up in Europe (from 5.9 to 6.1) and in North America, from 6.0 to 6.6.

The mood of optimism apparent in a number of responses was typified by the respondent who noted, “We clearly see an upswing in the markets when talking to various people at various locations in the last couple of months. There is, for the first time in a long while, a general feeling of optimism. Furthermore, the economic indicators, both small and large, all over the world, are pointing in the direction of recovery. We cannot expect it to reach the same levels as in 2007/2008, but a sustainable level of confidence is much better than skyrocketing markets because the higher you climb the lower you might fall.”

Another respondent pointed out, “The light we see at the end of the tunnel is not, as had been feared, a train coming towards us. We are quietly optimistic, with supply and demand seeming to come into balance, despite concerns over the amount of new orders being placed.”

One respondent emphasised, “A growing global economy, including the US and the EU, is crucial for an improved shipping market, and there are some good signs of that at the moment, which makes us hopeful for the future.” Another remarked, “We envisage the market growing in Asia, and in Brazil and Russia, typified by increasing imports of products for use in energy projects. We also see an increase in the use of gas as an alternative energy source, with many countries developing infrastructure and facilities to facilitate distribution.”

Others were slightly more guarded, such as the respondents who noted, “The shipping market will stay more or less at current levels well into next year as the world economic situation continues to fluctuate,” and, “The shipping industry in general is very weak at present, although we do expect improvements in 2014.” Others still remained pessimistic, such as the respondent who complained, “Shipping companies are facing a number of challenges, including low market rates caused by overtonnaging in a number of sectors, slow growth in the global economy, and increases in global ship operating costs.” Another noted, “Supply remains higher than demand, with significant falls in freight rates, while operating costs are always increasing. All this means that the shipping business is no longer attractive.”

Elsewhere it was noted, “Things are still pretty fragile, and it wouldn’t take much to knock many operators back into the hole again,” and, “We think the industry is stuck where it is for another year as available tonnage waits for an uplift in world trade.”

The overriding concern on the part of respondents once more related to the levels of excess tonnage both in the market and about to enter it. “There is too much shipbuilding capacity which, coupled with the entry of new investors, will lead to a continuation in the current oversupply of tonnage and low rates,” said one respondent. Another noted, “We need to convince owners to stop building ships, especially tankers,” while another observed, “There is a large surplus which is unlikely to be removed for two or three years.”

One respondent said, “Our principal concern is the perennial ability of owners to kill off improvements by increasing the supply of vessels in every sector,” while another feared, “The higher average rates we are likely to see in 2014 will be killed off by massive new deliveries in 2015.” Yet another observed, “Owners must be disciplined when placing new orders, even if they have the luxury of using other people’s money.”

Operating costs and the cost of regulatory compliance continued to concern respondents, one of whom noted, “Regulations to control emissions are commendable, and owners will have to adhere to them, but they will need financial support to compensate for the high cost of installing technologically advanced equipment to meet the requirements.” Another pointed out, “Regulatory requirements are still not fully factored into economic assessments, be they financing or investment decisions, and this will come back to haunt the industry.”

“Operating costs and the increasing cost of regulation are major factors,” noted one respondent, “and indeed the cost of additional regulation directly affects operating costs. There is a problem also with the supply of qualified crew, especially in certain niche markets, due to the ‘greying’ of the supply pool.” Another respondent simply said, “Low freight rates, high operating costs and costly regulations are killing us.”

The likelihood of respondents making a major investment or significant development over the next twelve months was up on the previous survey, on a scale of 1 to 10, from 5.5 to 5.8 which, as with overall confidence, is the highest figure recorded since August 2010. The figure for managers was up from 5.8 to its highest ever figure of 6.1, while that for owners was also up, from 5.8 to 6.0. Although charterers recorded a fall, from 6.7 to 6.4, they remain the most optimistic category of respondent in terms of the likelihood of making a new investment.

The number of managers rating the likelihood of making a new investment over the next twelve months at 7.0 out of 10.0, or higher, was up from 45 per cent to 51 per cent, while the number of owners who thought likewise was up by one percentage point from 47 per cent to 48 per cent. The percentage of charterers of like mind, however, was down from 72 per cent to 45 per cent. Geographically, expectation levels of major investments were up in both Asia and Europe, from 5.5 to 5.7 and from 5.6 to 5.8 respectively, and in North America from 5.0 to 5.8.

One respondent said, “While earnings and income are low, there is still a great deal of activity involving planning and preparing for the future, and indeed we are investing with a very positive attitude.” Another noted, “Some major owners have the funds available to acquire tonnage. But the key is timing, and too many big shipping companies are intent on looking good on paper despite the fact that they are actually drowning.”

A number of respondents referred to the increasing involvement in the industry of non-shipping investors. One said, “The risk of overcapacity in all sectors has increased now that so many non-shipping investors have discovered the shipping market”, while another noted, “Over the past five years we have seen a lot of non-shipping investors enter the market, and they have now seen that shipping is not an easy business. But we are hopeful for the future, and now is certainly not the time to leave the table.”


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 and finance costs were down by one percentage point to 23 per cent and 15 per cent respectively, while competition was unchanged at 19 per cent. Tonnage supply (unchanged at 13 per cent) featured in fourth place, ahead of fuel costs (static at 10 per cent) and operating costs, another non-mover, at 9 per cent.

Demand trends remained the number one performance-affecting factor for owners, unchanged at 25 per cent. Tonnage supply, meanwhile, was up one percentage point to 17 per cent in joint-second place with finance costs, up 2 percentage points. For managers, meanwhile, competition was in first place, up 2 percentage points to 22 per cent, the highest figure in the life of the survey. Demand trends, unchanged at 15 per cent, featured in second place ahead of finance costs, down four percentage points to 14 per cent.
For charterers, demand trends, although down by 7 percentage points to 26 per cent, featured in first place, ahead of competition (up 2 percentage points to 22 per cent), and tonnage supply, unchanged at 16 per cent.

Geographically, demand trends were the most significant factor for respondents in Asia (up by one percentage point to 24 per cent), Europe (down to 22 per cent from 24 per cent) and North America (up by 3 percentage points to 35 per cent, the highest figure recorded since the survey was launched). Competition and finance costs, in that order, made up the top three performance-affecting factors in both Asia and Europe, while in North America it was competition and tonnage supply.

There was a one percentage-point fall (from 41 per cent to 40 per cent) in the number of respondents overall who expected finance costs to increase over the next twelve months. The number of respondents expecting finance costs to come down, meanwhile, fell by two percentage points to 9 per cent, which was nevertheless still the second-highest figure recorded in this regard since August 2011. Owners were the only main category to record an increase in the numbers of respondents expecting higher finance costs (up from 36 per cent to 41 per cent). The figure for brokers was down from 50 per cent to 36 per cent, while both managers (down from 44 per cent to 40 per cent) and charterers (down ten percentage points to 28 per cent) recorded all-time survey lows in this respect.

The number of respondents in Asia anticipating an increase in the cost of finance fell by 4 percentage points to 49 per cent, while in Europe the numbers were up from 33 per cent to 35 per cent. In North America, meanwhile, the numbers anticipating higher finance costs fell sharply from 57 per cent to 33 per cent.

One respondent said, “Financing is a big problem”, while another noted, “It is difficult to finance new projects, given unsatisfactory returns on investment and perceived risk levels on the part of banks.”

Turning to the freight markets, there was, for the second survey in succession, an increased expectation of higher rates in the tanker and dry bulk sectors. One respondent claimed, “Rates have not reached this level since October 2008.” In the container ship market, meanwhile, confidence was maintained at existing levels.

The number of respondents overall who expressed an expectation of higher rates in the tanker sector over the next twelve months was up by 5 percentage points to 43 per cent, the highest figure since May 2011. Owners led the way, with 52 per cent anticipating higher rates, as opposed to 37 per cent last time. Managers’ expectations in this regard were up by one percentage point to 37 per cent, but 40 per cent of brokers (as opposed to 35 per cent last time) thought that tanker rates were likely to go up over the coming year. Charterers, however, were of a different mind, with the number anticipating higher tanker rates falling from 43 per cent to 36 per cent.

Geographically, the prospects for increased tanker rates were deemed higher this time by respondents in Asia (up from 39 per cent to 46 per cent), in Europe (up from 36 per cent to 40 per cent) and in North America (up by 40 percentage points to 83 per cent).

In the dry bulk sector, meanwhile, there was a 14 percentage-point increase, to 56 per cent, in the overall numbers of those anticipating rate increases. This is the highest figure recorded in the life of the survey, and 100 per cent up on the corresponding figure when the survey was launched in 2008. Managers, up by 22 percentage points to a survey high of 60 per cent, led the way, followed by owners, up 6 percentage points to 58 per cent, another all-time high. Even charterers, recording a 5 percentage-point increase to 47 per cent, and brokers (up by 25 percentage points to 46 per cent) were looking on the bright side.

Expectations of higher dry bulk rates over the next twelve months were up to all-time survey highs in both Asia and Europe, rising by 21 per cent and 13 per cent respectively to levels of 63 per cent and 55 per cent. The numbers were also up, by 8 percentage points to 64 per cent, in North America.

One respondent said, “The dry cargo market is coming into balance and, with the new eco-ships on the way, everything looks very positive for those owners who have the right fleet profile and minimal counter-party risk.” Elsewhere, however, it was noted, “Strong dry bulk markets can only last for a very short time, making it difficult to compensate for the poor market conditions we have seen in recent years.”

In the container ship market, the numbers expecting rates to increase over the coming twelve months was unchanged at 30 per cent. Owners’ expectations were up by 3 percentage points on last time to 30 per cent, while optimism in this regard on the part of brokers rose from 25 per cent to 29 per cent. The expectations of managers rose two percentage points to 30 per cent, while those of charterers held steady, also at 30 per cent. Geographically, expectations of improved container ship rates were up by 3 percentage points in Asia to 36 per cent, by 9 percentage points in North America to 44 per cent, and unchanged in Europe at 27 per cent.

One respondent made the extravagant claim that, “All non-operator-owned container ships need to be removed from the market, so that over-supply can be corrected.”

Moore Stephens shipping partner, Richard Greiner, says, “The findings of this latest survey provide more good news for the shipping industry. It is now fifteen months since we recorded a decline in shipping confidence. There is an old adage which says that confidence is contagious. If that is true, shipping certainly seems to have caught the bug.

“It was noticeable on this occasion that, in contrast to previous surveys, very few of our respondents referred to the effect that the global economic and political situation is having on their business. This does not mean, of course, that those problems have gone away. But it is a clear indication that they are perceived to be improving, to the extent that the industry is now focusing on issues closer to home, and moreover on problems where they can realistically contribute towards helping to find a solution.

“Those problems represent a significant challenge for the shipping industry. Moreover, they continue to have a familiar ring to them. There are still too many ships for the cargoes available on many trades. There is not the ready access to bank finance that many would like. Operating costs are expected to rise over the next two years, following the fall for 2012 recorded by Moore Stephens’ ship operating costs benchmark study OpCost. Crew wages are only moving in one direction. The cost of keeping up with regulatory compliance is now a big-ticket item. And P&I premiums are on the increase.

“These problems will not go away. But the prospect of being able to fund them properly is brighter now than for some time. Expectations of improved rates in the dry bulk sector are now higher than at any time in the last five years, while in the tanker market the mood is at its most bullish for two and a half years. In the container trades, things are meanwhile holding up well. In short, there should be more money about next year, although no shortage of things to spend it on.

“Some of that money will have to be spent on compliance and on increased operating costs, but there could be some over for new investment, expectations of which are running at their highest survey levels for two and a half years. That is good news, particularly when viewed together with indications of the increasing interest being shown in shipping by non-industry investors. The latter, of course, can bring problems of its own, but in principle the prospect of new money coming into shipping should be a good thing.

“Whatever the level of new money coming in, the vast majority of players who have survived the downturn of the past five years are very much old money in terms of their industry experience. They have taken the worst that can be thrown at them and are still standing. That means that they have committed to operating in a cleaner and leaner shipping industry, and to meeting the costs that go with it. Provided the evidence of improved confidence that we are seeing does not turn out to be a false dawn, they can reasonably expect to reap better rewards over the coming years than they have for some time.”


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 634 offices of independent member firms in over 100 countries, employing 23,693 people and generating revenues in 2012 of $2.5 billion. www.moorestephens.co.uk