Shipping provides reasons to be cheerful

The shipping industry faces some very significant challenges over the coming years but has a number of reasons to be cheerful as it enters a new decade, according to accountancy and business advisory firm BDO.

Richard Greiner, Partner, Shipping & Transport at BDO, says, “Last year marked the 150th anniversary of the opening of the Suez Canal, which in many ways helped to revolutionise the conduct of global shipping markets. Now, on the cusp of a new decade, whilst there is nothing comparable in prospect, there are nevertheless a number of very important fundamental changes in the offing, and moreover a number of reasons to be optimistic about the fortunes of the industry over the coming decade.

“At the end of 2019, confidence in the industry was as high as it has been at any time in the past six years. Despite a general slowdown in global GDP, demand for the industry’s services remains strong, while a contraction in the number of newbuildings on order and a steady stream of recycling has brought supply under stricter control. If supply and demand are in harmony, much good will inevitably follow.

“Shipping nevertheless faces some serious challenges in the immediate future, not least the need to comply with new regulations. Environmental Social Governance (ESG) will assume increasing importance. With IMO 2020 in effect, the fuel price differential becomes a significant factor from day one of the new decade, and it will be instructive to see whether freight rates will cover the increased costs thus incurred.

“IMO 2020 scrubber retrofits in drydock will continue to keep tonnage off the water, although shipments of low-sulphur fuel will boost the product tanker trades. New fuel solutions will doubtless continue to be trialled, while it will become clearer whether the Poseidon Principles can be the new global framework for responsible ship finance.

“Elsewhere, operating costs are forecast to go up, while geopolitics and trade wars and sanctions will continue to exert their customary influence. The first full financial reporting season with the new lease accounting standards in force will no doubt see bigger balance sheets for some in the industry.

“We now know that Brexit really does mean Brexit, but what does Brexit itself really mean? There are a number of presidential and parliamentary elections scheduled for 2020, including those in the United States, Egypt, Greece, Hong Kong, New Zealand, Poland, Singapore and Venezuela. Each has the potential to impact shipping in a positive and/or negative way.

“Other issues facing the shipping industry at the dawn of a new decade include exchange rate volatility, and the question of whether US interest rates will continue to fall. LIBOR will not be replaced until the end of 2021, but the time to prepare is now.

“Perhaps the biggest challenge of all, however, is the need to maintain and increase technical innovation in ship and engine design, and to harness the required technology through the likes of Big Data and Artificial Intelligence - and then not to forget to plan for the seafarer of the future.

“Over decades, most markets historically rise as often as they fall. Shipping has weathered the past decade better than many predicted, and so enters the new one all the stronger for that. If it can meet the financial, technological and regulatory challenges which it faces, it will continue to be attractive to existing and new investors alike.”

Note to editors
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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BDO / Moore Stephens merger strengthens shipping presence

The merger between leading accountants and advisers BDO LLP and Moore Stephens LLP in London was completed earlier this month.

Clients of the merged firm, BDO, will have access to offices in over 160 countries with a presence in every major shipping location in the world.

Michael Simms, Partner and Head, Shipping & Transport at BDO, says: “Both BDO and Moore Stephens LLP have for many years been leading accountants and advisers to the shipping and transport sector. We are confident our clients will now benefit greatly from having access to the combined resources of the two firms.

“The merger enables us to deliver the ever-increasing range and depth of solutions demanded by our clients, who can expect the same high-quality, industry-leading service to which they have become accustomed.”

The BDO 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


Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.

Our clients are Britain’s economic engine – ambitious, entrepreneurially-spirited and high-growth businesses that fuel the economy.

We share our clients’ ambitions and their entrepreneurial mind-set. We have the right combination of global reach, integrity and expertise to help them succeed.

BDO LLP
BDO LLP operates in 17 locations across the UK, employing nearly 5,000 people offering tax, audit and assurance, and a range of advisory services. BDO LLP has underlying revenues of £590m and is the UK member firm of the BDO international network.

BDO’s global network
The BDO global network provides business advisory services in 162 countries, with 80,000 people working out of 1,600 offices worldwide. It has revenues of $9bn.

Press office:
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media@bdo.co.uk

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Confidence slips marginally on geopolitical fears

Shipping confidence dipped very slightly in the three months to end-August 2018, according to the latest Confidence Survey from international accountant and shipping adviser Moore Stephens.

The average confidence level expressed by respondents was down to 6.3 out of a maximum possible score of 10.0, this compared to the four-year-high of 6.4 recorded in May 2018. Confidence on the part of owners, however, was up from 6.6 to 6.8, equalling the highest level achieved by this category of respondent when the survey was launched in May 2008, with an overall rating for all respondents of 6.8 out of 10.0.

Confidence on the part of charterers was also up, from 6.7 to 7.0, the highest level for nine months. The rating for managers, however, was down from 6.7 to 6.2, and for brokers from 6.3 to 4.9. Confidence in Asia was up from 6.1 to 6.3, equalling the highest rating achieved over the past 12 months.


The likelihood of respondents making a major investment or significant development over the next 12 months was up from 5.2 to 5.5 out of 10.0. Owners’ confidence was up from 5.5 to 6.5, but charterers recorded a drop from 6.7 to 4.0. Expectations of major investments were up in both Asia (from 5.9 to 6.1) and Europe (from 4.8 to 5.3).

The number of respondents who expected finance costs to increase over the coming year was down to 59% from 63% last time. Owners (up from 64% to 70%) and charterers (up from 33% to 50%) expected such costs to increase, but managers (down from 65% to 45%) and brokers (down from 75% to 71%) were of the opposite opinion.

The number of respondents expecting higher rates over the next 12 months in the tanker trades was up by 3 percentage points to 53%. In the dry bulk sector, there was a 16 percentage-point fall, to 38%, in the numbers anticipating higher rates, while the numbers expecting higher container ship rates fell from 43% to 26%. Net sentiment in the tanker sector was +44, in the dry bulk trades +27, and for container ships +3.

Demands trends were identified by 28% of respondents as the factor likely to influence performance most significantly over the coming 12 months. Competition (23%) was in second place, followed by finance costs (17%).

In a stand-alone question, 44% of respondents said they expected tariff wars to have “some” impact on the industry over the next 12 months. Meanwhile, 42% categorised such impact as “considerable,” and 11% felt that it would be “minimal”.

Richard Greiner, Moore Stephens Partner, Shipping & Transport, says, “A small dip in confidence is not the news the industry wanted to hear, but confidence remains at its second-highest level for four-and-half years. Moreover, it is significant that the confidence of both owners and charterers actually increased.

“Concerns about geopolitical factors dominated the comments from respondents. These were led by President Trump’s efforts to transform US trade relations, but also included state support for shipping in China and South Korea. Shipping will always stand to reap the benefits of its global identity and presence, but will also court the risks that this must inevitably embrace.

“Fortunately, shipping is accustomed to playing on the big stage, against a volatile backdrop and to a demanding audience. The Baltic Dry Index is up on a year ago and oil prices are on the rise. These and other positive portents encourage the belief that shipping is starting to recover, albeit slowly, from a ten-year downturn.”


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

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 reports four-year high in shipping industry confidence

Moore Stephens reports four-year high in shipping industry confidence

Shipping confidence reached a four-year high in the three months to end-February 2018, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens.

The average confidence level expressed by respondents was up from 6.2 out of 10.0 in November 2017 to 6.4 this time. Confidence on the part of owners was also at a four-year high, up from 6.4 to 6.6, while managers’ confidence was up too, from 6.1 to 6.4. The rating for charterers, however, continued its recent erratic performance – down to 5.0 from 7.7 in November 2017, but up on the 4.7 recorded in August 2017. Confidence on the part of brokers, meanwhile, was down from 6.3 to 6.1.

Confidence was up in Europe from 6.3 to 6.6, equalling the highest ever rating for this category of respondent in the life of the survey, which was launched in May 2008 with an average confidence rating across all respondents in all geographical areas of 6.8. Confidence was also up in Asia, from 5.7 to 6.3, and in North America, from 5.8 to 5.9.

The likelihood of respondents making a major investment or significant development over the next 12 months was up on the previous survey from 5.3 to 5.5 out of a maximum possible score of 10.0, its highest level since May 2014. Of note was the increased confidence of charterers (up from 6.2 to 6.8) and of managers (up from 5.3 to 5.6). Geographically, increased expectations of major investment were highest in Asia (up from 5.0 to 5.8).

The number of respondents who expected finance costs to increase over the coming year was up from 59% last time to 64%, the highest figure since May 2008 (66%). One respondent said, “Starting next year, the industry looks set to benefit from capacity reductions at shipyards, but the cost of funding will rise for most market participants.”

Demand trends, meanwhile, were cited by 24% of respondents as the factor expected to influence performance most significantly over the coming 12 months, followed by competition (19%) and finance costs (15%). According to one respondent, “The supply and demand equation will balance out in line with industry growth rate over the coming years.”

The number of respondents expecting higher freight rates over the next 12 months in the tanker market was down by five percentage points on the previous survey to 39%, whilst those expecting lower rates were unchanged at 13%. Meanwhile, there was a four percentage-point increase, to 54%, in the numbers anticipating higher rates in the dry bulk sector, accompanied by a four percentage-point fall to 8% in the numbers anticipating lower rates. In the container ship sector, there was a two percentage-point increase to 38% in the numbers expecting higher rates, and a three percentage-point fall, to 12%, in those anticipating lower rates.

One respondent said, “The shipping market is still characterised by high volatility and excess tonnage in most sectors, particularly bulk carriers and tankers, but there is cause for slight optimism.”

When asked to predict where per-barrel crude oil prices would be in 12 months’ time, 36% of respondents opted for the $60-$69 range, as opposed to 29% when the same question was posed in February 2017. The 19% of respondents who opted for the $50-$59 range was just half the 38% who did so last year, while 28% of respondents favoured the $70-$79 price range, as opposed to just 10% 12 months ago.

Richard Greiner, Moore Stephens partner, Shipping & Transport, says, “The volatile nature of the shipping industry dictates that optimism should be tempered with caution. But a four-year high in confidence must be welcomed as extremely good news.

“Shipping is more confident of making a major new investment over the next 12 months than at any time in almost four years, even though finance will probably be costlier to access in the year ahead. Net freight rate sentiment is positive in all main tonnage categories and, whilst slightly down in tankers, it increased both in the dry bulk and container ship trades.

“Familiar problems persist. Excess tonnage in many trades and insufficient demolition levels continue to perpetuate uncertainty, and freight rates are not yet at the levels required to turn promise into reality. In the wider world, the impact on shipping of continuing political unrest in the Middle East, the US President’s proposal to impose tariffs on US steel imports, and the response of other countries to this, remains to be seen. All of this serves to underline how vulnerable shipping is to geopolitical influences. But the industry must take heart from its proven durability. Confidence breeds confidence, and confidence breeds success.”

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


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

Shipping confidence continues to edge upwards

Shipping confidence reached its highest rating in the past three years in the three months to end-August 2017, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens.

The average confidence level expressed by respondents to the survey was up slightly from the 6.1 out of 10.0 recorded in the previous survey in May 2017 to a three-year high of 6.2. The improved rating was attributable mainly to increased confidence on the part of owners, up from 6.1 to 6.5. Confidence levels on the part of brokers, meanwhile, fell from 6.4 to 6.3, while managers and charterers recorded more substantial drops – from 6.2 to 5.8 and from 6.4 to 4.7 respectively, the lowest levels in both cases since May 2016. The survey was launched in May 2008 with an overall confidence rating of 6.8.

Confidence levels were significantly up in Asia from 5.6 to 6.4, their highest level since May 2014. Confidence was also up in Europe, from 6.2 to 6.3, but down in North America, from 6.4 to 5.8.

Despite familiar concerns about excess tonnage capacity in many trades and continuing uncertainty over Brexit, several respondents saw reasons for optimism over the coming 12 months, not least as a result of what one described as “some green shoots of a relatively broad-based rebound in economic activity.” This helped maintain, at a three-year high, expectations of major investments being made over the next 12 months. Concern, however, persisted over political instability, the incipient cost of increased legislation, and the probable entry into the market of low-cost newbuildings.

One respondent said: “The future of the maritime industry will certainly be interesting, but will it also be enjoyable?”

The likelihood of respondents making a major investment or significant development over the next 12 months was unchanged from the previous survey at 5.4 out of a maximum possible score of 10.0. This represents the highest level achieved since August 2014, and this despite a slight fall this time (from 5.9 to 5.8) in the expectations of owners, and a much larger one (from 6.3 to 4.0) by charterers. The expectations of respondents in Asia were up, from 5.1 to 5.9, but down in Europe, from 5.4 to 5.2.

As was the case in the May 2017 survey, 50% of respondents expected finance costs to increase over the coming year. Owners’ expectations were unchanged at 48%, but both managers and charterers (where the figures were up from 57% to 62% and from 57% to 67%, respectively) were anticipating dearer finance. Brokers were alone among the main categories of respondent in recording a fall (from 63% to 42%) in the numbers expecting finance costs to go down.

Demand trends, cited by 27% of respondents, continued to be the factor expected to influence performance most significantly over the next 12 months, followed by competition (17%) and tonnage supply (15%), the latter displacing finance costs in third place. One respondent said: “Confidence is impaired by the inexperience of investment houses resulting in over-liquidity in the market, which feels that it has to spend just for the sake of it – a ‘greed-eats-brain’ mentality.”

The number of respondents expecting higher rates over the next 12 months in the tanker market was up on the previous survey, from 32% to 45%, while there was a 2% fall, to 14%, in those anticipating lower tanker rates. Meanwhile, although there was a two percentage-point fall, to 56%, in the numbers anticipating higher rates in the dry bulk sector, this was still the second-highest figure in three-and-a-half years. In the container ship sector, the numbers expecting higher rates dropped by six percentage points to 40%, while there was a five percent increase, to 17%, in those anticipating lower container ship rates.

Net sentiment was positive in all the main tonnage categories, and up in the tanker market from +16 in May 2017 to +31 this time. There were meanwhile small declines in net sentiment in the dry bulk and container ship trades, from +50 to +49 and from +34 to +23 respectively.

In a stand-alone question, respondents were asked to rank in order of priority what they considered to be the most significant new sources of finance for shipping over the next 12 months. Bank finance emerged as the first choice of 27% of respondents, followed by private equity (18%). Lease finance (14%) featured in third place, one percentage point ahead of shareholder funds. One respondent said: “Banks are being a lot tougher with owners, and it is good to see the demise of the CV and KG systems which generally did little to help the long-term viability of the industry.” Another observed: “For good owners, there is still capital available. But the worry is for the second and third-rung owners.”

Richard Greiner, Moore Stephens Partner, Shipping & Transports, says: “Another three months, and another rise in confidence in the shipping industry, albeit a small one. Confidence has been increasing steadily over the past 15 months, and industry players are more confident of making a major investment over the coming year than they have been at any time in the past three years. Moreover, net sentiment in all three main tonnage categories is positive, having almost doubled in the tanker sector over the past quarter.

“This welcome boost in confidence comes at a difficult time for the industry, beset by overtonnaging in many trades, the current and impending cost of regulatory compliance, and more widely by geo-political pressures. Clearly, shipping still has a lot to offer existing and new investors alike, both traditional and external.

“To some extent, success in the shipping industry is a question of being in the right place at the right time. But there is a lot of skill, knowledge and experience involved, too. It is good to see that confidence is still on the increase. They do say that it’s the hope that kills you but, in truth, the lack of it is likely to be far more damaging.”

To download a copy of the survey report please visit the Moore Stephens website:
https://www.moorestephens.co.uk/news-views/september-2017/shipping-confidence-continues-to-edge-upwards

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 new low in shipping confidence

Overall confidence levels in the shipping industry fell to a record low in the three months to February 2016, 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 5.0 on a scale of 1 (low) to 10 (high). This compares to the 5.6 recorded in November 2015, and is the lowest rating in the life of the survey, which was launched in May 2008 with a confidence rating of 6.8.

All main categories of respondent with the exception of brokers (up from 4.6 to 5.1) recorded a fall in confidence this time, most notably charterers (down from 5.5 to 3.9), which is the lowest confidence rating by any category of respondent in the history of the survey. Confidence on the part of owners and managers was also down, from 5.7 to 4.8 and from 5.8 to 5.5 respectively.

Geographically, confidence was down in all major areas covered by the survey – in Asia from 6.0 to 4.4, in Europe from 5.4 to 5.1, and in North America from 5.7 to 4.7.

A number of respondents continued to express concern about the level of overtonnaging, with one pointing out, “Newbuilding deliveries for 2016 will increase the total fleet by 10.5%, 7% of the current fleet is older than 20 years, and cargo volumes in 2015 were just 4.5% higher than in 2014, so the expected available fleet per metric ton of dry cargo available will be higher at the end of 2016 than it is now. As a result, there is no chance of freight levels improving.” Another respondent said, “As long as shipowners operate based on hope rather than on solid economics, there will always be booms and busts.”

Particular concern was expressed about the state of the dry bulk market, with one respondent commenting, “No dry bulk business makes any remote sense. There are too many players, too many operators, and too many vessels chasing too few cargoes. Most fixtures are concluded merely to keep the banks happy in the belief that some tiny amount of cashflow is coming in.” Elsewhere it was noted, “Dry bulk is simply at the bottom of the bottom, and actually a little lower than that.”

The need for accelerated demolition was also identified by a number of respondents, one of whom noted, “Scrapping activity is far from sufficient to compensate for incoming new tonnage.” Another observed, “Low scrapping prices provide little motivation for owners to demolish ships,” although another still said, “Increased scrapping may help achieve equilibrium in the dry bulk sector sooner rather than later.”

Falling oil prices were also a recurring topic in responses to the survey. One respondent said, “Global bulk oil movements will be the key to conditions in the tanker market over the next 12 months. With storage facilities almost full to capacity, there will be nowhere to stock additional supplies unless global economies pick up and oil production is regulated.” Other respondents, meanwhile, saw some solace in soft oil prices, typified by the comment that, “The wet markets stand a better chance of remaining profitable on the back of weak crude oil prices.” Elsewhere, however, there was concern about the effect of falling oil prices on the offshore maritime sector, with one respondent noting, “There are companies in the offshore shipping market which are under pressure and in potential danger of being shut down.”

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 5.2 to 4.8, which equals the figure recorded in February 2009 as the lowest in the life of the survey to date. Owners, managers and brokers were less confident in this regard than they were three months ago, but the confidence of charterers was up, from 4.8 to 5.1. One respondent said, “We are paying for excessive investments over the past five years by speculative funds that would win an Oscar for the quickest/largest destruction of capital in the shipping world.” Another said, “Weak demand is undermining confidence and investment.”

The number of respondents who expected finance costs to increase over the next 12 months was down by five percentage points on last time, to 42%. The number of charterers anticipating dearer finance fell by 11 percentage points to 56%, but the number of owners of like mind rose by one percentage point to 36%. The number of brokers expecting a rise in finance costs, meanwhile, fell from 75% to 36%. One respondent said, “Millions of dollars are lost each day by owners, and soon will be by bankers. We are navigating very risky waters.” Another noted, “There is no future in this industry unless all sectors, including financiers, take a more in-depth approach.”

Demand trends, competition and tonnage supply featured as the top three factors cited by respondents as those likely to influence performance most significantly over the coming 12 months. Demand trends, which were up by two percentage points to 26%, remained in first place, with competition (unchanged at 21%) in second place. Tonnage supply, at 15%, occupied third place, one percentage point ahead of finance costs. Operating costs, up by six percentage points to 12%, featured in fifth place, ahead of fuel costs and regulation at 4%, the latter representing a five percentage-point drop on the figures for November 2015.

One respondent said, “Demand has let us down at the most inopportune moment possible,” while another predicted, “Competition will remain fierce and only by aggressive marketing will we achieve growth.”

There was a 16 percentage-point increase in the number of respondents anticipating lower freight rates in the tanker markets. But there was a small increase in the number of respondents anticipating higher rates in the dry bulk and container ship sectors, compared to the figures for November 2015. The net sentiment in the tanker market was -23, but +22 and +8 in the dry bulk and container ship sectors respectively.

“Tankers should be able to benefit in 2016 from the lack of market consensus over oil price movements, with longer-term decisions delayed as operators search for direction,” noted one respondent, while another commented, “Dry bulk provides opportunities for investment only for cash-rich owners who can afford to lose in the near term.” In the container ship sector, meanwhile, the point was made that, “Sometimes it seems that container ship operators are guided more by market share considerations than by sound economics.”

Respondents were asked a stand-alone question concerning the level which they expected crude oil prices to be at in 12 months’ time. 31% predicted that the price would be between $30 and $39, while 26% put the figure at between $40 and $49. 10% of respondents thought the price would fall between $20 and $29.
One respondent said, “It would be no surprise if crude tops $50 in the next 12 months, but anything significantly above that is unlikely.”

Richard Greiner, Moore Stephens Partner, Shipping Industry Group, says: “Shipping continued along its volatile course in the three months to end-February 2016, with the confidence of industry participants reaching the lowest level since our survey was launched in May 2008. This is disappointing and unsurprising in equal measure.

“When the Baltic Dry Index drops to an all-time low it is a real indication of the problems facing the shipping industry. The BDI doesn’t lie, and any doubts about the extent of those problems would have been dispelled over the past three months when reports of the fall in the BDI started to appear in the mass media, which generally carries only bad news insofar as it impacts the shipping industry.

“Most recently, however, there is better news, with the BDI starting to move upwards once more, gaining over 100 points within six weeks of plumbing the depths. Moreover, there is a reasonable expectation that the approaching peak harvest season will bolster demand for ships to carry grain and other commodities on international trade routes. This should boost the BDI further and, while shrinking demand for raw materials from China will continue to have an effect, the world will always need shipping to move its trade staples.

“Overcapacity in any industry will inevitably lead to price-cutting and eventually to financial difficulties for the weakest, the least well-prepared, or sometimes simply the unluckiest. Shipping has had its share of bankruptcies, foreclosures and restructurings during the past few years, and it is likely that we will see more over the coming months, with negotiations doubtless enlivened by the fact that shipping’s purse-strings today are often controlled by an intriguing mix of private equity and traditional shipping finance.

“The simple answer to overcapacity is to reduce the numbers, but ships are too big to hide and disposing of excess units is more difficult in shipping than in most other industries, particularly when there are record numbers of new cabs just waiting to come off the rank. Increased ship recycling is one obvious answer, although current low scrap prices mean that fewer numbers of most tonnage types are being recycled.

“In a climate of continuing overcapacity, increased regulation, ongoing political unrest and economic instability, the shipping industry must find a way to supplement the bread-and-butter of its livelihood – the freight markets. Current indications are not good. The tanker industry may still be reaping a somewhat perverse benefit from low crude oil prices, but that window of opportunity may be starting to show the first signs of closing. Roughly a quarter of respondents to our survey predicted that crude prices would be between $40 and $49 in 12 months’ time which, whilst it would have bought you only just under half a barrel less than two years ago, is more in line with the current price level.

“The dry bulk sector, meanwhile, looks especially troubled, with one respondent to our survey claiming that new historic lows in dry bulk freight rates are being set every day. Reports suggest, however, that more and younger dry bulk vessels are being recycled in spite of weak demolition rates, and contrary to the trend with other categories of tonnage.

“In any industry, the price of a service or product must exceed the cost of providing that service or product in order to achieve a return on investment. In shipping, that is simply not happening at present. Operating costs are going up while freight rates generally are not even keeping pace. Nobody doubts the ability of shipping to bounce back. It has a long history of doing just that. This time, the only question is when.”

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 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

Overall confidence levels in the shipping industry fell during the three months to February 2015 to their lowest level for two-and-a-half years, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens. Respondents to the survey identified overtonnaging as the biggest factor behind the fall in confidence, but also expressed concern about the effect on the industry of lower oil prices and the growth of investment by financiers from outside shipping.

In February 2015, the average confidence level expressed by respondents in the markets in which they operate was 5.5 on a scale of 1 (low) to 10 (high), down from the 5.7 recorded in November 2014. This is the lowest figure since August 2012, and compares to the record high of 6.8 when the survey was launched in May 2008.

Charterers recorded the biggest fall in confidence, down to 3.9 from 5.4 in the previous survey. Confidence on the part of owners was also down (from 5.5 to 5.4), while that expressed by managers was slightly up, from 6.1 to 6.2. Confidence in the broking sector was unchanged at 5.0. Geographically, confidence was down in all main areas covered the survey.

A surplus of tonnage, particularly in the dry bulk trades, dominated the comments of those who responded to the survey. One said, “Dramatic over-ordering in the dry cargo market in the last two years has led to the catastrophically bad market we have today. What is now even more frustrating is that those clever guys who thought that dry cargo newbuildings were a good idea are now starting to convert them to tankers. Excellent! Let’s hit another sector that has just found its feet with more unnecessary orders! When will people learn?”

Falling oil prices were another recurring theme among respondents, one of whom warned, “The trickle-down effect of cutbacks in the oil sector will result in a decrease in business across the board for companies in the shipping industry.”

A number of respondents expressed concern about the effect on the markets of the entry into the industry of new money from non-shipping investors. One complained, “Excessive liquidity from US markets being invested in Far East shipbuilding programmes is killing any improvement in the market.” Another, however, emphasised, “The markets have a way of correcting themselves, and the probable withdrawal of short-term investors should ease the tonnage imbalance.”

The survey revealed that the likelihood of respondents making a major investment or significant development over the next twelve months was down on the previous survey, on a scale of 1 to 10, from 5.3 to 5.1, the lowest figure since February 2012, although managers were more confident in this regard than they were three months previously. One respondent said, “Short-term investors are likely to exit the market at a loss when they find there is no quick and easy money to be made.”

The number of respondents who expected finance costs to increase over the next twelve months was down by eight percentage points to 32 percent, the lowest figure in the seven-year life of the survey. One respondent said, “Access to non-conventional ship finance has made it much too easy for vessel owners to order new tonnage far in excess of prospective demand growth.”

Demand trends, competition and tonnage supply featured as the top three factors cited by respondents as those likely to influence performance most significantly over the coming twelve months. The numbers for demand trends were down on last time from 25 percent to 24 percent, while those for competition were up one percentage point to 21 percent. Tonnage supply, up by one percentage point to 14 percent, displaced finance costs in third place this time. Fourth place was shared by finance costs (down by 2 percentage points to 12 percent) and operating costs, up by 2 percentage points. Meanwhile, fuel costs were unchanged at 7 percent, unsurprisingly the lowest figure recorded in this category since November 2010. One respondent said, “The expected advantages to be derived from eco-designs have been eroded by the collapse in the price of bunkers, leaving expensive assets chasing demand that is growing only slowly.”

Turning to the freight markets, there was a fall in the number of respondents anticipating improved rates in the tanker sector over the next twelve months, but increased expectation of higher rates in the dry bulk and container ship trades. Overall net sentiment, based on the difference between the number of respondents who expected rates to improve and the number who thought they would deteriorate, was positive in all three main tonnage categories covered by the survey.

One respondent said, “Strong demand driven by the fall in oil prices has strengthened the current crude oil shipping market,” while another noted, “The dry bulk sector is still suffering from overtonnaging in all ship sizes.” Respondents also remarked that containerisation was moving into some trades previously dominated by break-bulk ships.

Richard Greiner, Moore Stephens Partner, Shipping Industry Group, says, “Shipping is doing its best to live up to its reputation as a highly cyclical industry. Confidence has fallen to its lowest level for two-and-a-half years, having been at its highest for six years in first-quarter 2014. A year is a long time in shipping.

“The current state of the Baltic Dry Index (BDI) tells its own story. Having nudged towards 12,000 in mid-2008, it recently hit a thirty-year low of 509. Lower commodity prices, reduced demand and an oversupply of ships are among the reasons cited for this collapse in the world’s dry bulk freight rates.

“Overtonnaging is not so much the elephant in the room as the room itself. It is a major factor in the collapse of freight rates. Elsewhere, everything from continuing problems in the world economy to the imposition of sanctions (most recently those involving Russia) has helped neither the confidence nor the performance of the markets. Even the fall in oil prices, which at first blush might have seemed to be good news for an industry with such a high fuel bill, has its down side too.

“A number of respondents to the survey saw a link between what they regarded as easy access to non-traditional ship finance and a failure to improve the level of overtonnaging. There is a certain logic to this argument, but the day when shipping fails to attract new money from both internal and external investors is the time to really start worrying. Over the past twelve months and more we have seen the banks start to rediscover their appetite for shipping to some degree, while private equity investors have become increasingly significant players. The current ship finance market is much-changed from the traditional model which many of today’s established players grew up with. But different doesn’t have to be bad and, however volatile the market, new investment is essential to both survival and growth.

“None of this will be news to those experienced industry players who, to varying degrees, have seen tough markets before and who will find the wherewithal and the patience to ride out the current difficulties. It is less certain whether others will be able, or willing, to hold their nerve so well.”

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 drops to two-year low as concern mounts over cost of regulation

Overall confidence levels in the shipping industry fell during the three months to November 2014 to their lowest level for two years, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens. The survey revealed increasing concern about the high cost of achieving compliance with new regulations, and ongoing doubts about overtonnaging. But it was not all bad news, with charterers, managers and brokers all more confident than they were three months previously of making a new investment over the coming year.

In November 2014, the average confidence level expressed by respondents in the markets in which they operate was 5.7 on a scale of 1 (low) to 10 (high), down from the 6.1 recorded in August 2014. This compares to the record high of 6.8 when the survey was launched in May 2008.

All categories of respondent recorded a fall in confidence this time, most notably charterers (down to 5.4 from a record high of 6.7 three months ago) and owners (down from 6.2 to 5.5). Confidence on the part of managers, meanwhile, fell marginally from 6.2 to 6.1, while for brokers it was down from 5.3 to 5.0. Geographically, confidence was down in Asia and Europe to 5.8 and 5.6 respectively from the levels of 6.0 and 6.1 recorded three months previously. Confidence in North America, however, held steady at 6.2.

A number of respondents referred to continuing uncertainty in the markets, resulting from a variety of factors. One said, “The market remains directionless. It needs accelerated scrapping, which would make economic sense for owners of older tonnage. But, given the recent drop in fuel costs, such owners could elect to hold on to their ships for the time being.”

One respondent predicted, “Most sectors will continue to struggle along the bottom, kept alive by low interest rates,” while another felt, “There is still too much capacity and an unreasonable expectation of performance levels, given all the new ordering that is taking place.”

Not everybody was quite so pessimistic, however. One respondent said, “The global markets are expected to pick up around mid-2015,” but warned that the viability of shipping depended on the scrapping of 60 percent of all vessels over 20 years’ old and on a drastic reduction in the number of new vessels being built.

One respondent predicted, “The shipping market will improve slightly over the next few months as it mirrors the slow improvement in global markets.” But not everybody agreed. “The road to recovery is very long and very hard,” said one respondent. “Europe is still struggling and it seems unlikely that things will improve soon, even if demand for shipping increases in other parts of the world where the economy is faring better.” Another noted, “The world economy is not as healthy as expected. China has changed its growth model, while Europe is struggling under austerity measures and a lack of investment. The US may be in better health, but it is not able to drag shipping out of the doldrums in the short term.”

Elsewhere it was noted, “We are heading for a low level of activity in all markets. With sanctions on Russia and Iran, and fighting in Iraq and Syria and elsewhere, people are spending less money, which results in fewer cargo movements.”

The cost of meeting the growing regulatory burden in the shipping industry was high on the list of concerns expressed by respondents, one of whom noted, “The ballast water treatment legislation hangs like a dark cloud over all technical ship managers. This represents a huge investment accompanied by a high level of risk.” Another observed, “Regulation is becoming stricter, and now accounts for a greater slice of operational expenses than it did a few years ago. This is bad. But it is the only way to push older tonnage out of the market.”

Another respondent emphasised, “There seems to be a lack of willingness to acknowledge the negligible level of pollution caused by shipping in relation to the volume of merchandise which is shipped globally.” Other comments included, “New EU environmental regulations will have a knock-on effect beyond the primary maritime industries,” and, “Freight rates will not compensate completely for the additional cost involved in operating on low-sulphur fuel.”

Responses to the survey were completed before the announcement of the bankruptcy filing of OW Bunker, the industry’s largest fuel supplier. But a number of comments referred to the significant role played by fuel costs in the fortunes of the shipping industry, such as the respondents who noted, “High fuel costs and operating costs kill small shipowners,” and, “Bunker rates will fall still further.” Another pointed out, “Bunker prices are currently low but, with new sulphur regulations coming in, customers are receiving a very mixed message. Nobody knows what the fuel price will be in six months’ time.”

Elsewhere it was noted, “New fuel types developed to achieve environmental compliance will have a major impact on vessel operations, but there is great uncertainty about how many incompatible variants will be available on the market. Vessels operating on a worldwide basis will face fuel compatibility challenges.”

Meanwhile, a number of respondents warned that there were still too many ships available for the cargoes on offer. “As long as an insufficient level of old tonnage is being scrapped,” said one, “and until investors in newbuildings get a grip, the situation will continue to get worse.” Another observed, “It is already six years since the downturn in the freight markets and, despite there being no ground for a sustained upturn, new tonnage continues to be ordered. We have no explanation for this.”

Elsewhere it was pointed out, “Over-ordering will continue to slow the rate of recovery for the foreseeable future, but this will not stop owners buying while vessels are so cheap.” Another respondent said, “Given the overarching fundamental problem of overcapacity, every new ship entering the market will add to the lingering fear of a collapse in freight rates.”

The likelihood of respondents making a major investment or significant development over the next twelve months was down marginally on the previous survey, on a scale of 1 to 10, from 5.4 to 5.3, the lowest figure recorded in this respect since August 2012. Despite this, the figures for brokers, managers and charterers were all up, in the case of the first two by two points to 4.7 and 5.8 respectively, and in the case of the latter by one point, from 5.5 to 5.6. Expectations on the part of owners in this regard, meanwhile, were down from 5.6 to 5.1.

Forty percent of managers, as opposed to 38 per cent last time, rated the likelihood of making a new investment over the next twelve months at 7.0 out of 10.0 or higher, while 38 percent of charterers (up from 21 percent in August 2014) were of like mind. Meanwhile, the 36 percent of owners anticipating making a new investment over the coming year this time was down on the previous figure of 41 percent.

Geographically, expectation levels of major investments were unchanged in Asia at 5.2, but down in Europe, from 5.4 to 5.2, and from 5.6 to 5.3 in North America, where 33 percent of respondents rated the likelihood of making a new investment over the next twelve months at 7.0 out of 10.0 or higher, as opposed to 22 percent in the previous survey.

Comments from respondents in this regard focused largely on the growth of private equity funding in shipping. One said, “The ongoing attack on shipping by private equity investors and outsiders is still active. Until this stops, shipping does not stand a chance of producing decent returns for the historic shipowner who invests in shipping for the long term. With low yields still in place around the world, returns required by public companies and private equity investors are tragically low, so they invest in projects they really shouldn't be investing in. In addition, the new Master Limited Partnership structure is reducing required returns still further. Shipping has no place in the MLP world.”

Demand trends, competition and finance costs, in that order, once again featured as the top three factors cited by respondents overall as those likely to influence performance most significantly over the coming twelve months. The overall numbers for demand trends were up from last time from 23 percent to 25 percent, while those for competition and finance costs were unchanged at 20 percent and 14 percent respectively. Tonnage supply (down one percentage point to 13 percent) featured in fourth place, while operating costs (unchanged at 10 percent) and fuel costs (down 2 percentage points to a four-year low of 7 percent) featured in fifth and sixth places respectively.

Demand trends, up 4 percentage points to 27 percent, remained the number one performance-affecting factor for owners. Tonnage supply (unchanged at 18 percent) and competition (down one percentage point to 17 percent) featured in second and third places respectively. For managers, meanwhile, competition (down 3 percentage points to 18 percent) remained in first place, while demand trends (up 2 percentage points to 17 percent) replaced finance costs (down 2 percentage points to 15 percent) in second place. For charterers, competition (up 15 percentage points to 31 percent) pushed demand trends (up by 5 percentage points to 30 percent) into second place, with finance costs (unchanged at 16 percent) in third position.

Geographically, demand trends were the most significant factor for respondents in Asia (unchanged at 20 percent), Europe (up 3 percentage point to 27 percent) and North America (up 9 percentage points to 37 percent). Competition was the second most significant performance-affecting factor in Asia (down 2 percentage points to 19 percent), Europe (up one percentage point to 20 percent) and in North America (unchanged at 20 percent). In both Asia (up by one percentage point to 14 percent) and North America (down by 2 percentage points to 13 percent), finance costs featured in third position, while in Europe it was tonnage supply (unchanged at 15 percent) which occupied third place.

One respondent noted succinctly, “There is too much competition, too many ships, and not enough cargo.” Another observed, “If continued access to low-cost ship finance persists and encourages still more owners to order additional tonnage - especially in the tramp shipping sector - the prospect of a sustained freight market recovery taking hold will recede even further into the distance.”

The number of respondents overall who expected finance costs to increase over the next twelve months was up by one percentage point to 40 percent. For both charterers and managers, the increase was 9 percentage points to 38 percent and 45 percent respectively, while for owners there was a one percentage point increase to 40 percent. Brokers (down from 44 percent to 36 percent) were the only category of main respondent to record a lower expectation of higher finance costs.

The number of respondents in Asia anticipating an increase in the cost of finance was up by 3 percentage points to 48 percent, Europe was unchanged at 35 percent, and in North America there was an 11 percentage-point fall to 56 percent.

One respondent said, “In some cases, little if any of the financing loan will have been paid off against ships which are now approaching their first special survey and which will have suffered a huge depreciation in value due to age and the current low market.” Another noted, “There is concern about the influence wielded by irresponsible hedge funds which do not understand the nature of the business and the risks involved.”

Turning to the freight markets, there was a fall in the number of respondents anticipating higher rates in the tanker, dry bulk and container ship trades.

The number of respondents overall expecting higher rates in the tanker sector over the next twelve months fell by one percentage point to 40 percent. The views of owners (up 10 percentage points to 51 percent) differed greatly in this regard from those of managers (down 7 percentage points to 36 percent), charterers (down 5 percentage points to 33 percent) and brokers (down by 28 percentage points to 30 percent).

Geographically, the prospects for increased tanker rates were up in Asia (by one percentage point to 41 percent) and in North America (from 29 percent to 44 percent) but down in Europe, from 42 percent to 38 percent.

One respondent said, “Overtonnaging in the tanker sector will greatly affect rates for years to come, even if there is real economic growth of the sort we need. The market is ever more unpredictable.”

In the dry bulk sector, meanwhile, there was a 12 percentage-point fall, to 35 percent, in the overall numbers anticipating rate increases. Just 36 percent of charterers, compared to 64 percent last time, thought that dry bulk rates would go up over the coming year. The numbers for all other main respondents were also down, in the case of brokers by 24 percent to 19 percent, and in the case of managers by 10 percent to 33 percent. Fifty percent of owners, compared to 55 percent last time, expected rates to increase.

Geographically, the prospects for increased dry bulk rates were down in Asia by 17 percentage points to 38 percent, and in Europe, from 47 percent to 35 percent. Such prospects in North America, meanwhile, were unchanged at 14 per cent.

“There is oversupply in the world bulker fleet for the available cargo supply,” noted one respondent. “If demand for raw and or semi-raw materials does not increase, we can write off another year.”

In the container ship market, meanwhile, the number of respondents expecting rates to increase over the coming twelve months was down by 6 percentage points to 25 percent. The number of charterers anticipating higher rates was down by 15 percentage points on last time to 25 percent, while for owners the drop was from 42 percent to 40 percent. Managers (up from 18 percent to 22 percent) were the only category of main respondent more confident this time than in August 2014 of higher container ship rates over the coming year. Geographically, expectations of improved container ship rates were unchanged in Asia at 32 percent, but down in in Europe from 34 percent to 23 percent.

Moore Stephens shipping partner, Richard Greiner, says, “Confidence in the shipping industry is at its lowest level for two years, just nine months after reaching a six-year high. A rating of 5.7 out of 10.0 may still be reasonably good in comparison with many other industries, but shipping’s failure to build on the growth in confidence reported in 2013 and early 2014 is undeniably a disappointment.

“The main reason for this may well be the one advanced by the respondent to our survey who complained of ‘too much competition, too many ships, and not enough cargo.’ Add to that the adverse effect which those three factors have on freight rates, and you have some measure of the problems currently facing the industry.

“Meanwhile, shipping continues to pay for the very international nature of the business which, perversely, is also its strength. Ongoing political unrest involving the Middle East and Ukraine does nothing to encourage growth in seaborne trade, while the global economic recovery which appeared to be under way at the beginning of the year seems to have stalled in a number of countries. The Japanese economy is in recession, France has been cast in some circles in the unfamiliar role of the sick man of Europe, and even the newly prosperous economies of China and India are currently performing below expectation.

“The cost of existing and impending regulation in shipping is another problem which is international in nature. Such costs were a recurring theme in the responses to our survey. Sulphur emissions regulations will make shipping an even cleaner and greener industry than it already is, and will encourage the development of more eco-friendly tonnage, but they come at a hefty price. Even that, however, may be small change compared to achieving compliance with the BWT convention which is now very close to ratification. To all this must be added a predicted rise in operating costs of almost three percent this year and next. But it is not all bad news.

“Shipping is still attracting investment. It may not be the type of investment which die-hard traditionalists would prefer, but private equity investors are not known for throwing their money away on lost causes. Oil (and therefore bunker) prices continue to fall, which should have a positive effect on voyage expenses for as long as it lasts. Meanwhile, cargo continues to move, if not always in the volumes and at the rates the industry would like.

“Shipping confidence began 2014 on a high. It is evident that, for now, some of that confidence has been rendered fragile and replaced by a degree of uncertainty. Some of that uncertainty may be resolved in 2015 as the extent of regulatory costs becomes clearer, and the success of recent attempts to reduce overtonnaging can be reassessed. Nevertheless, the market is likely to remain volatile in 2015 as shipping attempts to meet the challenge of finding the right balance between risk and reward.”

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 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
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 picks up despite eurozone fears

Overall confidence levels and the likelihood of major new investments in the shipping industry in the next 12 months picked up marginally in the quarter ended November 2011, according to the latest Shipping Confidence Survey from leading accountant and shipping adviser Moore Stephens. This was tempered by an expectation of a rise in finance costs. Respondents also continued to exhibit a high level of concern about the negative impact of overtonnaging on the market amid continuing fears about the global economic climate, and the eurozone crisis in particular.

In November 2011, the average confidence level was 5.4 on a scale of 1 (low) to 10 (high), up on the 5.3 recorded in August 2011. But, together with the February 2009 figure, it remains the second lowest confidence rating since the survey was launched in May 2008 with a rating of 6.8. Confidence among owners was up from 5.1 to 5.3, but down on the part of charterers, from 5.0 to 4.9. There was a small increase in confidence in the broking sector, from 5.1 to 5.2. Confidence was highest among managers, unchanged at 5.6. Europe, up from 5.0 to 5.1, was the least confident region. In May 2008, European confidence stood at a high of 6.6, and as recently as August 2010 was running at 6.1. Confidence in Asia rose from 5.7 to 5.8 and in North America from 5.1 to 5.8.

The eurozone crisis featured prominently in comments from respondents. “Above everything,” said one, “it is the European financial crisis which will decide how things turn out for shipping in general and for shipowners in particular.” Another remarked: “Volatility remains high, with prospects for a solution to the European debt crisis a long way away. A comparison with the Lehman Brothers collapse does not seem that far-fetched at the moment.” Lehman was also on the mind of another respondent who noted: “What is still unknown is how the eurozone crisis will unfold and what sort of knock-on impact this will have, not only on global demand but also on the availability of finance for trade and asset acquisition. When this is coupled with the increasingly strident demands from governments and regulators for banks to build up more and more capital to avoid further state bail-outs, what you have is a toxic financial brew that makes 2008/9 and the collapse of Lehman Brothers look like a vicar's tea party. These are deeply uncertain times.”

State intervention was also foreseen by another respondent who noted: “The supply overhang in almost all sectors remains a serious challenge despite slippage and cancellations. Cancelled newbuildings will still be built, especially in China, where they will simply be owned by state-supported yards and operators and will therefore continue to add to the level of over-supply. Ship finance will be available to only a few, financially strong companies.”

One respondent said: “The US and Europe need to take some drastic recovery measures sooner rather than later.” Another observed: “The tonnage oversupply situation, plus the eurozone crisis and a depressed world economy, equals misery.”

A number of respondents took a pessimistic view of how long it might take for shipping to turn the corner: “It is now more likely than ever that shipping will remain depressed for the next three years, with only marginal improvements thereafter over the next five years.” Admitting that some of its ships were only breaking even while others were operating at a loss, leading to vessel sales and redundancies, one respondent said: “We do not expect the market to recover for at least another three or four years.”

The threat posed by overtonnaging was very much on the minds of respondents. “After 30 years in shipping, I believe the summer of 2012 will be the worst I have experienced,” said one respondent. “The oversupply of tonnage bought at inflated prices, combined with turmoil in north European manufacturing, will mean that shipping companies, brokers and owners not involved in the transport of food products are going to be the hardest hit.” Another emphasised “more discipline and restraint is called for” while other comments included “owners should re-enter negotiations to further delay deliveries” and “the market is doomed.”

Despite these gloomy predictions, respondents overall were more optimistic of making a major investment or significant development over the next 12 months. On a scale of 1 to 10, the likelihood of such a development rose to 5.2 from 5.1 in the last survey. Owners (up from 5.3 to 5.5), managers (5.2 to 5.4) and charterers (5.7 to 5.8) were all more confident than last time. When the survey was launched in May 2008, the likelihood of major investments was rated at 5.9 overall.

Charterers are the only category whose expectations are higher now than they were in May 2008. Over the life of the survey, charterers have moved from being significantly less likely than owners and managers to make a major investment, to being the most likely of these three categories. One respondent noted: “By next year, it is hoped that there will be a significant increase of confidence in the shipping industry as various players get set to make big investments.”

Demand trends, competition and finance costs continued to dominate the top three factors cited by respondents overall as those likely to influence performance most significantly over the coming twelve months. 24% of respondents (up from 22% last time) cited demand trends as the most significant performance-affecting factor, with 17% opting for competition (unchanged from last time) and for finance costs (up from 16% last time).

For owners, demand trends continued to dominate, with an increase from 24% to 26%, ahead of finance costs and tonnage supply. Operating costs (up from 15% to 18%) emerged as the number one performance-influencing factor for managers, followed by competition and demand trends, both unchanged at 17%. For charterers, meanwhile, fuel costs moved into the number one spot, with a ten percentage point increase on last time, from 16% to 26%. Demand trends (up from 23% to 24%) and competition (down from 18% to 15%) made up the remainder of charterers’ top three.

Geographically, demand trends remained the most significant factor for respondents in Asia and Europe (18% and 26%, respectively). In Europe, finance costs (up from 16% to 19%) assumed increased importance compared with last time, moving into second place. Competition, meanwhile, was less significant this time for European respondents (in third place, down from 19% to 16%). Conversely, it assumed increasing importance (up from 19% to 26%) in North America, where tonnage supply also moved into the top three at the expense of finance costs.

Having fallen significantly in the last survey, there was a five percentage point increase this time (from 52% to 57%) in overall expectations of an increase in finance costs. Owners (up from 53% to 57%) and managers (up four percentage points to 56%) joined in thinking that finance costs would rise. But charterers (down from 48% to 46%) thought differently. Moreover, the number of charterers expecting finance costs to fall was down to its lowest figure since May 2010. There was an increase this time in the numbers of respondents in both Asia and Europe who thought finance costs would rise (up from 50% to 54%, and from 53% to 61%, respectively). The same was true of North America, where the increase was from 40% to 47%. One respondent noted: “Shipping cycles are nothing new, but there has never been a cycle which coincides with an acute liquidity crisis in the banking sector that will not be resolved in the short (two-to-three year) term.”

So far as expectations of rate increases in the markets were concerned, it was a case of down, down, down in all three main tonnage categories from owners and managers in all geographic areas covered by the survey. In the tanker sector, the number of respondents expecting rates to increase over the coming year was down from 34% to 30%. But while the numbers of owners and managers expecting increases were down (from 30% to 28% and from 36% to 33%, respectively), there was a 19 percentage point increase (from 21% to 40%) in the number of charterers who thought rates would go up. There was also a corresponding 19 percentage point fall (from 26% to 7%) in the number of charterers expecting tanker rates to fall over the next 12 months. Not for the first time, the chartering sector seems to know something which other parts of the market do not. One respondent emphasised: “The oversupply of crude tankers will be prolonged due to national governments intervening to prop up domestic owners and shipyards.”

It was the same story in the dry bulk sector where, for the first time in three years, the number of respondents overall predicting a decline in rates over the next 12 months exceeded the total of those who thought they would increase. The number expecting rates to increase was down this time from 27% to 23%, a new all-time low in the life of the survey. The number of owners who thought rates would go up also hit an all-time low (down from 22% to 20%), while for managers (down from 34% to 31%) it was the second-lowest figure ever recorded, just one percentage point up on the 30% for November 2010. Again, though, charterers bucked the trend, with 33% expecting dry bulk to rise over the next 12 months, compared to just 8% last time. In August 2011, 42% of charterers thought that rates would come down; this time, just 29% were of that view. One respondent admitted to “massive fears” about the dry bulk sector, noting: “Unless there are some major building contracts scheduled for next year, the bottom will fall out of the market.”

For the first time since February 2009, the number of respondents overall expecting a decline in container ship rates was higher than the number anticipating rate increases. Overall, just 23% of respondents (compared to 28% last time) expected rates to go up, the second-lowest figure since the survey began, behind only the 20% recorded in October 2008. Meanwhile, 31% thought that rates would go down, the highest figure since the 36% recorded in February 2009. The number of charterers expecting rates to increase fell from 30% in August this year to just 13% this time, while the figures for owners and managers were also down, from 25% to 23%, and from 31% to 23%, respectively.

Moore Stephens shipping partner, Richard Greiner, says: “It says a great deal for the resilience of the shipping industry that, despite the problems facing the sector, and notwithstanding the acute difficulties bedevilling the world economy, our survey showed a small increase in confidence. Like a boxer who refuses to lie down, shipping is fighting to ride the punches and to bounce back off the ropes. There was even an increased expectation that respondents would be making a major investment over the coming 12 months. This is encouraging, and supports the belief that now is a good time to buy for those who have access to funding.

“Nevertheless, it is undeniable that shipping is struggling on a number of fronts. Seldom, if ever, can classic problems within the industry have coincided with such a severe economic downturn and acute debt crisis. Overtonnaging is the issue dominating responses to our survey and, even when other concerns are raised, overtonnaging is still the ‘elephant in the room’. It will doubtless remain so for some time, but the situation could be eased in the shorter-term by sensible renegotiation and resourceful financing.

“Meanwhile, operating costs are set to rise, with a recent Moore Stephens survey predicting a 3.7% increase in 2012. Shipping is an expensive business in which to operate, and the returns currently available through the freight markets are generally not sufficient to offset operating costs and leave any prospect of a return on investment.

“These are challenging times. The shipping industry which emerges intact from the current downturn will be stronger than the one which entered it. The loss of some good, well-run companies is the sad but inevitable result of the singular economic conditions currently prevailing throughout the world. But the loss of short-termist, inadequately funded companies will leave the industry in much better shape than it was before the indicators started to point in the wrong direction."


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.

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 638 offices of independent member firms in 97 countries, employing 20,588 people and generating revenues in 2010 of $2,151 billion. www.moorestephens.co.uk

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