Ten years after, shipping industry confidence holds firm

Shipping confidence held steady in the three months to end-May 2018 according to the latest Confidence Survey from international accountant and shipping adviser Moore Stephens.

The average confidence level expressed by respondents was unchanged at the four-year high of 6.4 out of 10.0 recorded in February 2018. Confidence on the part of owners was also sustained at a four-year high, of 6.6, while managers’ confidence was up from 6.4 to 6.7. The rating for charterers was up to 6.7 from 5.0 and confidence in the broking sector was up from 6.1 to 6.3. The survey was launched in May 2008 with an overall rating for all respondents of 6.8.

The likelihood of respondents making a major investment or significant development over the next 12 months was down on the previous survey from 5.5 to 5.2 out of a maximum possible score of 10.0. Confidence was highest among charterers, followed by owners (down from 5.9 to 5.5), managers (down from 5.6 to 5.4) and brokers (down from 4.0 to 3.5).

The number of respondents who expected finance costs to increase over the coming year was down to 63% from 64% last time. Whereas, in the previous survey, charterers were unanimous in expecting finance costs to increase, just a third were of that opinion this time.

The number of respondents expecting higher freight rates in both the tanker and container ship sectors was up, from 39% to 50% and from 38% to 43% respectively. In the dry bulk trades, such expectations were unchanged at 54%. Net sentiment in the tanker sector was +41, in the dry bulk trades +43, and for container ships, +32.

When asked to estimate the level they expected the Baltic Dry Index (BDI) to reach in 12 months’ time, 42% of respondents anticipated a figure of between 1500 and 1999, compared to 25% a year ago. Meanwhile, 36% put the likely level at between 1000 and 1499, contrasting with 52% a year ago.

Richard Greiner, Moore Stephens partner, Shipping & Transport, says, “It is two years since our survey reflected any decline in confidence. Net freight rate sentiment was significantly up in all the main tonnage categories. Shipping still has problems to overcome, but it continues to punch above its weight in terms of optimism.”

The survey was launched in 2008 just months before the Lehman Brothers bankruptcy which was to trigger a protracted global financial recession. Shipping markets were buoyant at the time, with an average confidence level of 6.8 out 10.0.

Over the past ten years, confidence averages out at 5.8 out of 10.0. The low point was the 5.0 out of 10.0 recorded in February 2016, since when it has only improved or been maintained. The 2010 financial crisis in Greece may have been a prime factor in the fall in confidence to 5.3 in August 2011, but thereafter began a period of fluctuation before a gradual recovery beginning in 2016 which appears not to have been affected by the birth of Brexit that year.

Over the life of the survey, demand trends have been the factor deemed most likely to affect performance, identified by an average 24% of respondents, followed by competition (20%) and finance costs (16%).

The ten-year averages for operating costs (10%), fuel costs (8%) and crew supply (5%) are all below the corresponding averages of 12%, 11%, and 11% for May 2008, doubtless due to the effects of the economic downturn and fluctuations in the price of oil. Ten years ago, regulation was cited by just 2% of respondents as a significant performance-affecting factor. Today it stands at 10% and averages 4% over the decade.

Over the last decade, an average of 48% of respondents have been of the view that finance costs were likely to rise over the coming year. When the survey was launched in May 2008, 66% of respondents were of that opinion. By February 2009, the numbers had dropped to 47% and, by 2015, to 32%. Today, the figure stands at 63%.

Ten-year averages for the freight markets reveal a sizeable increase in expectations of higher dry bulk and container ship rates. Net sentiment in dry bulk was -3 in May 2008, but the 10-year average is +24. The corresponding figures for container ships are +2 and +15. Ten-year net sentiment in the tanker sector, meanwhile, was +20 in 2008, and averaged +19 over the decade. In all three tonnage categories, current expectations of higher rates are significantly above those of ten years ago.

When the survey was launched, respondents rated at 5.9 out of 10.0 the likelihood of making a major investment or development over the next twelve months. The average for the ten-year period is 5.3. Expectations peaked at 6.0 out of 10.0 in August 2010 but reached a low of 4.8 in February 2016.

Richard Greiner says, “The survey reflects the sentiments of a volatile industry in a particularly volatile decade. Significant events have included the peak of a boom, a prolonged global financial recession, crises in the banking sector, the collapse of stock markets, the Greek debt crisis, Brexit, and an unprecedented level of government and industry bail-outs.

“Ten years is a long time in shipping, and the past decade has doubtless felt a lot longer still to those industry participants who have lived through it, even those inured to the peculiar cyclicality of the industry. Confidence may have fluctuated, but it has never collapsed, and portents for the coming decade can reasonably be expected to be better.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 614 offices of independent member firms in 112 countries, employing 30,168 people and generating revenues in 2017 of $2.9 billion. www.moorestephens.co.uk/shipping-transport


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

Moore Stephens says optimism likely to outweigh pessimism for shipping in 2018

International accountant and shipping adviser Moore Stephens expects optimism to triumph over pessimism in the shipping industry during the next twelve months.

Writing in the latest issue of Bottom Line, the newsletter of the Moore Stephens shipping industry group, partner Richard Greiner says, “According to a recent study, pessimists live longer than optimists, and shipping is short of neither. But the industry has always valued longevity as well as new blood, and it certainly ended 2017 in more optimistic mood than it closed the previous year.

“Oscar Wilde said it is always best to borrow money from pessimists, because they won’t expect it back. But there was no shortage of people lending money for sound business deals in shipping last year in the firm belief that that they will get it back – and not without good reason.

“Overall industry confidence hit a three-year high in 2017. Oil prices reached a three-year peak, while there was a 50% rise in the Baltic Dry Index over a six-month period in the second half of 2017. Finance was available from within and outside the industry. Some sanity returned to the newbuilding orderbooks, and charterers in particular displayed an appetite for new investment.

“In 2018, freight rates will harden if there is a further reduction in tonnage overcapacity and an acceleration in ship demolition. Money will still be available for the right investment. Shipping will continue to be impacted by geopolitical uncertainty, which could be influenced in either a positive or negative way by elections in Brazil, Iraq, Italy, Mexico, Russia and elsewhere.

“US interest rates will most likely go up over the coming 12 months, and the implications of new accounting standards will start to bite. Smart technology will assume increasing importance, adding value and improving safety but putting pressure on R&D budgets. Doubts will persist about the sufficiency of low-sulphur fuel, and gas will become an increasingly attractive option for powering new and converted tonnage as the price of oil recovers.

“The riddle wrapped in a mystery inside an enigma which currently presents itself as Brexit will continue to fuel pessimism and optimism in more-or-less equal measure.

“If there were no pessimists, there would be no optimists. Shipping remains a vital global industry, carrying the vast majority of world trade while emitting a lower per-unit level of harmful emissions than any other comparable form of transport. In 2018, optimism can be expected to outweigh pessimism in the shipping 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

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

Shipping confidence holds firm

Overall confidence levels in the shipping industry held firm over the three-month period to August 2013, maintaining the highest level reached since November 2010, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens. Doubts persist, however, over the level of excess tonnage and the resultant effect on freight rates, while there is growing concern over the increasing cost of regulation.

In August 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), identical to the figure recorded in the previous survey in May 2013. This is the highest figure since the 6.0 recorded in November 2010. The survey was launched in May 2008 with a then confidence rating of 6.8.

Charterers’ confidence reached a three-year high, up from 5.5 to 6.3, equalling the all-time survey high for charterers. Confidence was also up for owners, from 5.7 to 5.8, the highest figure since May 2011, and for managers, from 6.0 to 6.2. Confidence on the part of brokers remained unchanged at 5.9. Geographically, confidence was up in both Asia (from 5.8 to 6.1) and Europe (from 5.8 to 5.9), and unchanged in North America at 6.0

Comments from the industry
There was a theme of quietly returning confidence running through the comments of a number of respondents. “There is a feeling of optimism and the sense that we have turned a corner, with supply and demand expected to come into balance,” said one respondent.” Another noted, “The market is waking up, and more opportunities will appear in the near future,” and another still that, “The shipping market is very competitive and constantly evolving, with more and more new players entering the industry as the demand for shipping cargo by sea continues to increase.”

Elsewhere it was noted, “The shipping industry is seemingly moving towards a positive place, albeit slowly,” and, “The shipping market is on the rise, and will continue on that path.” One respondent said, “A shrinking orderbook, combined with the anticipated US and European economic recovery, should help to increase demand in 2014.”

Not everybody was so confident, however, with one respondent going so far as to say, “We have never known a period in shipping where the uncertainty factor has been so high in so many areas.” Another said, “Looking at the moves of some of the major players, we have to ask whether we are all blind or just plain ignorant. The rest of us will be paying for a handful of greedy CEOs who hide behind their number-crunchers who make everything look bright and shiny.”

Another respondent observed, “Some niche markets are showing definite signs of a boom, but others are still in decline. Any overall recovery is still at least another two years away. Managing to survive the last five years is no guarantee that a company will survive the next five.” Elsewhere it was noted that the abiding message must be, “Consolidate, consolidate, consolidate!”

A number of respondents expressed continuing concern about overcapacity. “Our biggest fear,” said one, “is that the financial markets will enter the shipping sector and start ordering new vessels again before moderate growth and scrapping volumes have had time to absorb excess tonnage.” Another said, “We are already worrying about the market from 2016 onwards because too many newbuilding orders are being placed on pure spec.”

One respondent said, “A lot of companies and investment funds seem to have the money and courage to invest again in new orders because they see that building prices have bottomed out. But we already have a serious problem with oversupply in all sectors and all tonnage sizes which will certainly not be solved by the time those new ships now being ordered will be ready to enter service.”

A number of respondents referenced the debilitating effect of overtonnaging on freight rates. “Freight rates need to rise,” said one, “but this will not happen while the supply of ships exceeds demand.” Another emphasised, “Freight rates cannot go up unless more ships are scrapped. Newbuilding should be stopped for a specified period, and the supply of easy cash should be regulated.”

A variety of regulatory issues were meanwhile high on the agenda of a number of respondents. One warned, “Regulatory issues will be coming to a head over the next 18 to 24 months which could require major capital investment to allow shipowners simply to stay in business.” Another emphasised, “Ballast water management requires huge investment which could force a lot of ships into the breakers’ yards,” while another still said, “Current high fuel costs will be significantly compounded by low-sulphur regulatory requirements from 2015 onwards.” One respondent complained, “Rules and regulations are forcibly implemented without consideration for the profit margins of the shipping industry, which affects the fortunes of all parties, including shipbuilders.”

Finance was uppermost in the minds of many respondents. “The shipping banks need to be more active and lend money on secondhand ships at affordable rates,” said one, while another noted, “Finance remains tight for all asset classes.” At the other end of the scale, meanwhile, was the respondent who observed, “We are worried about the huge amount of cash available for newbuildings.” Elsewhere, too, it was noted, “The latest fiasco of newbuilding ordering via IPOs and equity funds is an obstacle on the road to market recovery unless the scrap market can be accelerated to speed up the exit of older tonnage, resulting in demand overtaking supply.”

“High asset values combined with high financing costs will not allow owners to survive for very long unless demand strengthens,” said one respondent, while another expressed “concern about the potential actions of hedge and vulture funds acquiring debt from banks which have exited the market.” But another felt that, “Management of the debt position has been much more measured and calmer than in previous downturns, with less resort to fire-sale tactics, and this may facilitate a return to more normal conditions.”

The role of China in the fortunes of the shipping industry continued to exercise the minds of a number of respondents. “Any significant slowdown in the Chinese economy will have a negative effect on shipping markets,” said one, “although the massive economies of the US and Europe may be coming off lows, so there is potential there.” Another emphasised, “The number of new orders and deliveries in the dry bulk sector will lead to over-supply, and any disturbance in the demand for cargo by China will create a difficult market situation.” Yet another respondent, however, felt that demand for imported bulk cargoes in China was “insatiable.”

Investment
The likelihood of respondents making a major investment or significant development over the next 12 months was down marginally on the previous survey, on a scale of 1 to 10, from 5.6 to 5.5, which is still the second-highest figure recorded in the past two and a half years. Charterers were the most confident category of respondent in this regard, up from 6.0 to 6.7, while owners (up one point to 5.8) were also more optimistic this time. Managers, down from 6.0 to 5.8, and brokers, down from 5.2 to 5.1, were of a different mind.

The percentage of charterers who assessed the likelihood of their making an investment at 7.0 out of 10.0 or higher was up by 25 percentage points to 72 per cent, while the number of owners who thought likewise was up by 2 percentage points from 45 per cent to 47 per cent. Meanwhile, the number of managers rating the likelihood of making a new investment over the next 12 months at 7.0 out of 10.0, or higher, was unchanged at 45 per cent.

Geographically, expectation levels of major investments in both Asia and Europe were unchanged at 5.5 and 5.6 respectively, while in North America they were down from 5.9 to 5.0.

One respondent noted, “This is the right time to pick up assets as prices are at low levels, and anyone with funding should opt to buy new fuel-efficient tonnage, at the lowest price levels.” Another said, “In spite of overall difficulties there are niche opportunities to be explored.”

Performance
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 12 months. The overall numbers for demand trends were up 2 percentage points to 24 per cent, down 1 percentage point for competition at 19 per cent, and unchanged in the case of finance costs at 16 per cent. Tonnage supply (up 1 percentage point to 13 per cent) featured in fourth place, ahead of fuel costs (static at 10 per cent) and operating costs (down 2 percentage points to 9 per cent).

Demand trends remained the number one performance-affecting factor for owners, up by 4 percentage points to 25 per cent. Tonnage supply featured in second place at 15 per cent, down 1 percentage point, followed by finance costs, again down 1 percentage point to 14 per cent. For managers, meanwhile, competition, up 2 percentage points to 20 per cent, featured in first place, with finance costs (also up 2 percentage points, to 18 per cent) overtaking demand trends (down 3 percentage points to 15 per cent) in second place. For charterers, demand trends, up by 9 percentage points to 33 per cent, featured in first place, ahead of competition (up 3 percentage points to 20 per cent), and tonnage supply.

Geographically, demand trends were the most significant factor for respondents in both Asia and Europe (unchanged at 23 per cent in Asia and up by 2 percentage points in Europe to 24 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, demand trends (up by 6 percentage points to 32 per cent) displaced competition (down from 28 per cent to 24 per cent) in first place, with operating costs (up by 2 percentage points to 13 per cent) in third place.

There was a 4 percentage-point increase (from 37 per cent to 41 per cent) in the number of respondents overall who expected finance costs to increase over the next 12 months. The number of respondents expecting finance costs to come down, meanwhile, remained unchanged at its highest figure (11 per cent) since November 2010. Charterers were the only main category to record a fall in the numbers of respondents expecting an increase in finance costs (down from 50 per cent to 38 per cent). The figure for owners was up from 32 per cent to 36 per cent, and for brokers from 38 per cent to 50 per cent, while for managers it was unchanged at 44 per cent.

The number of respondents in Asia anticipating an increase in finance costs rose by 13 percentage points to 53 per cent, the highest figure in this regard since November 2011. At the same time, the number of Asian respondents expecting finance costs to fall (up 5 percentage points to 14 per cent) was the highest for three years. In Europe, there was a 1 percentage-point increase, to 33 per cent, in the numbers anticipating higher finance costs, while the corresponding figure for North America was up by 5 percentage points to 57 per cent. One respondent said, “It is much more difficult now to find a buyer for a ship which is supported by good financial resources.”

Freight rates
Turning to the freight markets, there was an increased expectation of higher rates in all three main tonnage categories covered by the survey. The number of respondents overall who expressed an increased expectation of higher rates in the tanker sector over the next 12 months was up by 1 percentage point to 38 per cent, the same figure as recorded when the survey was launched in May 2008, but still some way short of the survey high of 50 per cent posted in May 2010. Charterers (up 14 percentage points to 43 per cent) led the way in terms of increased expectations of better rates, followed by managers, up 5 percentage points to 36 per cent. The number of managers anticipating lower tanker rates fell 7 percentage points to an all-time survey low of 6 per cent. There was meanwhile a 4 percentage-point drop, to 37 per cent, in owners’ expectations of improved tanker rates.

Geographically, the prospects for increased tanker rates were deemed higher this time by respondents in Asia (up from 31 per cent to 39 per cent) and in North America (up by 19 percentage points to 43 per cent), but lower in Europe (down from 40 per cent to 36 per cent). Respondents in both Asia and Europe recorded all-time survey lows (of 6 per cent and 5 per cent respectively) when asked to predict whether tanker rates would fall over the coming year.

In the dry bulk sector, meanwhile, there was a 2 percentage-point increase, to 42 per cent, in the overall numbers of those anticipating rate increases. Owners (up 9 percentage points to 52 per cent) led the way, followed by managers, up 2 percentage points to 38 per cent. In the case of charterers, however, the expectation of higher dry bulk rates dropped from 48 per cent to 42 per cent, while there was a corresponding fall in brokers’ expectations, by 11 percentage points to 21 per cent.

Expectations of higher dry bulk rates over the next 12 months were up by 9 percentage points in Asia to 42 per cent, and in North America, from 35 per cent to 56 per cent, but down in Europe by 2 percentage points to 42 per cent.

One respondent said, “It looks like a repeat of 2003 for dry bulkers. It is a good time to buy.” Another noted, “We are confident about improvements in the dry market for 2014 and 2015.” Sounding a more cautious note, however, was the respondent who warned, “Since the start of the year we have seen a big increase in new orders for dry bulk tonnage, coupled with an unexpected hiatus in scrapping. Owners seem to have a death wish unless, of course, they are spending other people’s money. The eco argument is not a justification.”

In the container ship market, there was a 4 percentage-point increase, to 30 per cent, in the overall numbers expecting rates to go up. Owners’ expectations were up by 1 percentage point on last time to 27 per cent, while optimism in this regard on the part of brokers rose from 19 per cent to 25 per cent. The expectations of managers held steady at 28 per cent, but those of charterers dropped by 8 percentage points to 30 per cent. Geographically, expectations of improved container ship rates were up by 9 percentage points in Asia to 33 per cent, but down by 2 percentage points in Europe to 27 per cent. Respondents in North America, meanwhile, recorded a surge in expectations of higher container ship rates, from 17 per cent to 35 per cent.

One respondent said, “Container ship tonnage is being overbuilt, and overcapacity is likely to worsen as demand is not increasing sufficiently to compensate. But this provides as many opportunities as it does threats, and our confidence of being able to stay on the right side of the market is not diminished.” Another observed, “Counter-party risks and bankruptcies will affect tonnage demand and supply, and two-tier markets, especially in the German container ship sector, will result in a division between financially sound and restructured and near-insolvent risky KGs.”

Summary
Moore Stephens shipping partner, Richard Greiner, says, “It is now a full 12 months since we recorded a decline in shipping confidence. This is a clear indication that shipping is feeling optimistic about its future, as well as more comfortable with the state of the political and economic climate in which it operates.

“The issues giving rise to most concern - overtonnaging, declining freight rates and access to finance - have remained fairly constant throughout the life of the survey. But there are signs of improvement in all areas. Scrapping has increased significantly compared to the levels seen two-to-three years ago, although there is still a long way to go. Similarly, freight rates have started to improve, albeit beginning from the extremely low level to which they had fallen. Currently, for example, 42 per cent of respondents believe that dry cargo rates will pick up over the next year, while 38 per cent anticipate the same for the tanker trades.

“Access to finance, meanwhile, remains tight. There is an old adage about banks being institutions which exist to lend money to those who can prove they do not need it. In the case of shipping this should be amended to banks being institutions which will consider lending money to those who can prove that they have a sound business plan, whether it be in a niche sector or to meet genuine demand in a main market. Moreover, while money for both existing and new ventures is difficult to come by at present, there is no shortage of specialist advice on everything from restructuring and risk management to new ways of financing.

“Meanwhile, it is evident that respondents are becoming increasingly aware of the cost of achieving regulatory compliance. This is not a new concern, since the industry has been aware of the potential costs for some time. Rather, it may be that those operators who have survived the downturn and who are committed to remaining in the market have now started to turn their attention to the cost of doing just that.

“Regulation only ever increases in any industry, and shipping arguably faces a heftier bill than most, given what is coming up. There is, for example, the cost of complying with regulations governing the entry of ships into Emissions Control Areas, which will bite harder and wider in 2014 than previously. Set alongside this, however, the cost of complying with the Ballast Water Management Convention may seem like small beer. The convention will enter into force 12 months after ratification by no fewer than thirty states, representing 35 per cent of the world’s merchant shipping tonnage. Current figures would suggest that it will not be too long before these requirements are met.

“Shipping will have to factor into its cashflows the cost off regulation. There is no alternative, and all interested parties will somehow have to share the cost, in the freight markets and elsewhere. But none of this should deter the industry from moving forward with confidence. There is much to be optimistic about, not least a slowly improving global economic climate, a contraction in over-ambitious expansion absent the necessary collateral, and the continued emergence of new opportunities in the likes of the offshore and renewable energy sectors.

“Over a span of many years, shipping has shown itself to be a diverse, durable and entrepreneurial industry. Unsurprisingly, it is doing so once again.”

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.com


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 years

Overall confidence levels in the shipping industry recovered to their highest level for two years in the three months ended February 2013, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens. There was improved expectation of freight rate increases over the next twelve months, particularly in the dry bulk sector, and greater likelihood of new investment in the industry.

In February 2013, the average confidence level expressed by respondents in the markets in which they operate was 5.8 on a scale of 1 (low) to 10 (high), compared to the figure of 5.6 recorded in the previous survey in November 2012. The survey was launched in May 2008 with a confidence rating of 6.8.

All categories of respondent expressed increased confidence over the three-month period.  The confidence rating for managers of 6.2 (up from 6.0 last time) was the highest since August 2010, while that for charterers was up from 5.6 to 6.0, the highest since November 2010. Confidence on the part of owners was up from 5.5 to 5.7 (the highest since May 2011) while for brokers the increase was from 5.3 to 5.6, the highest level in the past twelve months. Geographically, although confidence in Asia was down (from 6.0 to 5.6) and in North America (from 6.6 to 6.1) it was up in Europe, from 5.3 to 5.8, its highest level since August 2010.

A number of respondents felt that there were positive signs that a recovery was on the way. One said, “Scrapping continues apace, and new orders have all but dried up. These are two of the main drivers for recovery, the third being demand, which will improve, with the result that we should see a measurable upturn by year-end.” Another noted, “Demand trends for seaborne trade are generally positive, and tonnage reaching obsolescence due to age and regulation will exit the market. Finance is competitive where available and, where it isn’t, owners and their ships will leave the market. Patience and strong cashflow management are essential.”

In the opinion of one respondent, “This year will be crucial in determining who will be able to benefit from the upswing in the market when it happens. It will depend on the banks’ attitude towards bad debt and increased foreclosure, the increased competitiveness of Japanese shipyards, and the phasing out of uneconomical, old ship designs.”

Some foresaw a continuation of difficult market conditions, such as the respondent who noted, “Last year was very difficult, and 2013 is likely to produce similarly meagre yields, so once again it will be all about trying to survive rather than moving forward.” In even more pessimistic vein, another respondent maintained, “The shipping market has been getting worse every year since 2008, and there is unlikely to be any improvement in 2013. There are still crazy shipowners ordering new ships which will hit the water in two years’ time, so the world fleet will keep increasing at a faster rate than will cargo volumes.” Elsewhere it was noted, “Be careful when selecting your counter-parties, and be happy if you are able to cover your expenses in today's market.”

A number of respondents were constrained to comment on the role of the banks, and the situation with regard to shipping finance generally.  “The lack of available finance severely restricts many good deals from getting off the ground,” said one, while another pointed out, “There may be a measurable upturn in the shipping industry by end-2013, but will the banks be with us? I doubt it.”

Elsewhere it was noted, “Despite some areas for optimism in specialist niche markets, the cost of capital looks certain to increase. Moreover, there are ominous signs that the German banks will be forced to get to grips with their shipping loans, leading to an increase in enforcements and distressed sales, putting further pressure on asset prices.” Another respondent said, “It is beginning to look as if the banks are starting to foreclose, with KGs no longer defying gravity,” while another still warned, “Even if banks take action against owners who cannot meet their repayments, the ships will not disappear but will stay in the market and potentially cause problems for other owners who have been able to survive thus far.”

Fuel costs were uppermost in the thoughts of a number of respondents. While some talked about the exciting prospects for LNG propulsion, others remained concerned about the rising cost of operating with heavy fuel oil.

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 5.4 to 5.5 – the highest level since May 2011. Owners (up from 5.7 to 5.9, the highest level since May 2011) and managers (up from 5.5 to the highest level for two years at 5.7) were more confident than in our previous survey. And although charterers recorded a fall from 6.1 to 5.7 in this regard, the percentage of charterers who assessed the likelihood of their making an investment at 7.0 out of 10.0 or higher was up by two percentage points to 46 per cent. The number of owners who thought likewise was up, also, from 44 per cent to 47 per cent.

One respondent noted, “Those who are able to purchase new designs of ships at competitive prices this year with delivery within the 2015 horizon should be well-positioned when the market turns. Newish ships based on old designs will very quickly become obsolete.”

Geographically, expectation levels of major investments were down in Asia, from 5.7 to 5.4, and in North America (from 5.4 to 4.9), but up in Europe from 5.2 to 5.5, their highest level since May 2011.

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 numbers were static for demand trends at 23 per cent, up for competition (from 18 per cent to 20 per cent), and unchanged in the case of finance costs at 16 per cent. Tonnage supply (up two percentage points to 13 per cent) featured in fourth place, ahead of fuel costs, which were down one percentage point to 11 per cent.

Demand trends remained the number one performance-affecting factor for owners, despite being down from 26 per cent to 22 per cent. Tonnage supply featured in second place at 18 per cent (up from 17 per cent last time), followed by finance costs, up one percentage point to 16 per cent. For managers, meanwhile, competition, up from 16 per cent to 20 per cent, featured in first place, followed by demand trends (up two percentage points to 19 per cent), and finance costs, down from 19 per cent to 17 per cent. For charterers, competition again was the leading performance-affecting factor, identified as such by 31 per cent of respondents, up from 24 per cent last time. Demand trends were in second place, up 7 percentage points to 29 per cent, followed by fuel costs, up one percentage point to 18 per cent.

Geographically, demand trends remained the most significant factor for respondents in Europe (unchanged at 24 per cent), and North America (up 10 percentage points to 38 per cent). In Europe, competition (up two percentage points to 19 per cent) featured in second place, ahead of finance costs, down one percentage point to 17 per cent. In Asia, meanwhile, competition (up from 19 per cent to 21 per cent) emerged as the number one performance-affecting factor, pushing demand trends (down two percentage points to 20 per cent) into second place, ahead of fuel costs. 

There was a 2 percentage-point fall (from 42 per cent to 40 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. Charterers cannot seem to make up their minds in this respect. In August 2012, the number of charterers who thought that finance costs would increase rose by 18 percentage points to 52 per cent. In November 2012 the figure was down by 20 percentage points to just 32 per cent. Now, it has risen again, to 50 per cent. The number of owners anticipating dearer finance this time was down by two percentage points to 37 per cent (equalling the lowest figure in the life of the survey), while 41 per cent of managers thought that finance costs were likely to rise over the coming year, down 10 percentage points on last time.

The number of respondents in Asia anticipating an increase in finance costs was down by 4 percentage points to 38 per cent compared to last time, and the corresponding figures for Europe and North America were also down, from 43 per cent to 39 per cent, and from 43 per cent to 42 per cent respectively. In the Rest of the World, meanwhile, the numbers who thought that finance costs were going to rise was up by 8 percentage points to 46 per cent.

Turning to freight rates, the numbers of respondents overall who expressed an increased expectation of higher rates over the next twelve months was up in the three main categories of tonnage covered by the survey. In the tanker sector, the numbers expecting higher rates rose by 4 percentage points to 35 per cent. Charterers were the only category to show a fall (from 31 per cent to 29 per cent) in the number of respondents anticipating a rise in tanker rates compared to the previous survey.  Owners recorded a two percentage-point increase to 36 per cent, for managers the increase was from 27 per cent to 32 per cent, and for brokers from 33 per cent to 42 per cent.  Geographically, the prospects for increased tanker rates were deemed lower this time by respondents in Asia (down from 35 per cent to 33 per cent), static in North America at 47 per cent, and up in Europe from 28 per cent to 36 per cent.

In the dry bulk sector, meanwhile, there was a 19 percentage-point rise, to 50 per cent, the highest figure in the life of the survey, in the overall numbers of those anticipating rate increases. Owners (up 20 percentage points to 50 per cent), managers (up to 52 per cent from 30 per cent), and charterers (up 27 percentage points to 60 per cent) were united in being more confident of dry bulk rate increases than they were in the previous survey. Even brokers (up 11 percentage points to 44 per cent) were in agreement. Geographically, it was the same story. In Asia, expectations of higher dry bulk rates increased from 33 per cent to 52 per cent, in Europe from 30 per cent to 51 per cent, and in North America from 28 per cent to 65 per cent.

“We are very confident of bulk industry growth in the short term,” said one respondent, while another noted, “Bearing in mind the deliveries due very soon in most dry bulk sectors, and the stabilisation of demand, we expect that the dry bulk market will soon show signs of recovery.” That view was echoed by the respondent who remarked, “We can expect higher freight levels in the second half of 2013, especially for handysize vessels.”

In the container ship market, meanwhile, there was a 7 percentage-point increase, to 34 per cent, in the overall numbers expecting rates to go up. Indeed, expectation levels in relation to rate increases were up across all categories of respondent, most notably in the case of charterers (up 12 percentage points to 47 per cent). Meanwhile, 36 per cent of owners (compared to 27 per cent last time) and 33 per cent of managers (up 10 percentage points on last time) expected container ship rates to rise in the next twelve months. Geographically, expectations of improved rates were down in Asia (from 36 per cent to 24 per cent), but up in Europe (from 22 per cent to 38 per cent) and in North America, from 39 per cent to 40 per cent.

Moore Stephens shipping partner, Richard Greiner, says, “Another small increase in confidence is very good news. Indeed, two successive quarters of improved confidence is in many ways more encouraging than one sizeable swing. It suggests that confidence is slowly building, indicating the start of a credible recovery.

“It is still early days, but the tone of the comments from respondents this time indicates something of a sea change. Whereas previous surveys have been dominated by concerns over specific issues such as tonnage overcapacity and the economic woes in Europe and elsewhere, this time there were no similar over-arching areas of concern identified by respondents. Indeed, the responses in many cases focused on planning for the future - for example by investing in new, fuel-efficient tonnage, exploiting new opportunities created by companies exiting the market, and exploring the possibilities for LNG as a clean fuel - rather than on compensating for past events.

“Improved confidence was reflected in another increase in the expectation levels involving potential new investments. Now is certainly a good time to invest, particularly for those who can identify a niche opportunity in a specific area, one for which there is growing demand and which is backed by a proper business plan.

“The indications are that the worst of the current shipping cycle could be over. But serious challenges lie ahead. Operating costs are going up, particularly fuel and manpower, and there is the added burden of increasing operational and environmental regulation. The cost of complying with the BWM convention has still not been accurately quantified, but it will not be insignificant. Indeed, one respondent likened it to a “ticking bomb which can go off at any moment, demanding enormous investment from already cash-strapped owners, and the banks will probably not be standing in line to support them.”

“Meanwhile, although freight rates still have a long way to go before they reach the levels seen at the height of the boom, the responses to the survey did reveal greater overall confidence in rate increases over the coming year in all three main tonnage categories. This was most evident in the dry bulk sector, where expectations of better rates were higher than at any time since the survey was launched in 2008. Although there is still a lot of new dry bulk tonnage coming into the market, scrapping levels in this sector have raced ahead, with well over 500 bulk carriers reported to have been consigned to demolition yards in 2012.

“Scrapping levels in all over-tonnaged sectors will need to be maintained, and improved upon, over the next twelve months, if shipping is to have a chance of returning to profitability. It is likely to be a slightly different industry which emerges from this prolonged downturn, one in which the banks will exert greater control for some time to come. Vessel values are likely to remain under pressure this year, and there is a lot of financial restructuring yet to be done. But shipping will retain its entrepreneurial flair, which is in no way undermined by operating from a stronger financial base.”

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                                          

Marco Polo Seatrade gets bank backing

Marco Polo Seatrade has received court approval to obtain fresh financing from Royal Bank of Scotland, one of its senior lenders. The New York Court supervising the reorganisation of Marco Polo approved today new financing to be provided by the Royal Bank of Scotland. This financing is being provided on a fully consensual basis and resolves the various objections that were filed to Marco Polo’s original financing motion.

This Court approval and the Court’s previous approval of the use of cash collateral ensures that Marco Polo will be able to continue to fulfil all charter contracts and to pay its expenses in the ordinary course of business. It also ensures that Marco Polo will be able to take advantage of profitable new charters.

Post-petition financing from one of its senior lenders is a significant step towards Marco Polo’s focus on a plan to emerge from Chapter 11 as a strong and healthy competitor in the global shipping market

What is it about Hamburg?

An old friend of mine has a habit of going into pubs and asking for “one of what The Beatles drank in Hamburg”. Once in a blue moon, he ends up with what he wants – a bacardi and coke.
Apart from being home to The Beatles for a few months in the Sixties, Hamburg is of course a great shipping city and port. But its name does not always have happy connotations in the maritime world. The Hamburg Floods were bad. In the Seventies, they provided marine cargo insurance underwriters with a way to lose lots of money when they had despaired of finding a new sink hole for their cash.

The Hamburg Rules were bad. They were supposed to be the new Hague-Visby Rules but instead turned out to be a partisan regulatory farrago and a largely neglected stepping-stone on the road to the Rotterdam Rules, which are only slightly more popular.

At least the Hamburg Ship Evaluation Standard is dividing opinion within the industry. It is both good and bad. But if it is agreed that using long-term charter rates to arrive at ship valuations is a good idea, then at least give the thing a chance by giving it a proper name. The Ship Evaluation Standard has such an authoritative ring.

Chris