Overall confidence levels in the shipping industry have shown a marginal drop over the past three months, according to the latest Shipping Confidence Survey from leading accountant and shipping consultant Moore Stephens.
At the same time, however, the number of respondents expecting to make a major investment or significant development over the next twelve months was up to a record high, while the percentage of those expecting finance costs to rise over the same period hit its lowest figure since the survey was launched in May 2008.
In August 2010, the average confidence level expressed by respondents in the markets in which they operate was 6.2 on a scale of 1 to 10, compared to 6.3 in the previous survey, which itself represented the highest level achieved for eighteen months. Confidence on the part of charterers was up from 6.2 to 6.3, but down for both owners and managers, from 6.3 to 6.1 and from 6.5 to 6.4 respectively. The only other specific category of respondent expressing increased confidence was the broking sector (up from 5.9 to 6.2). Geographically, Asia recorded the biggest fall in confidence, down from 6.5 to 6.2, having in May 2010 reported the most significant rise among the four main specific regions covered by the survey – Asia, Europe, Latin America and North America. Confidence was up this time in the latter two regions, albeit marginally, while in Europe it remained unchanged at 6.1.
A number of respondents commented on the adverse effect of what one described as the “negative effect created by the huge overhang of new orders”. “Owners have to understand that by continuing to order newbuildings for their fleets they are simply laying the foundation for self-destruction on a long-term basis,” observed one respondent. Uncertainty about the world economy continued to influence the thinking of many of those who responded to the survey. “The spectre of a global double-dip recession is very menacing indeed for the shipping sector," noted one respondent. “The US economy is still in recession when you discount the impact of government stimulus, and there must be serious concerns about the near and middle- term outlook”.
Expectations of making a major investment or significant development over the next twelve months were up overall, on a scale of 1 to 10, from 5.6 to 6.0, the highest level since May 2008. Charterers were the most optimistic in this regard, up to 6.1 from 5.7 last time, while owners (up from 5.9 to 6.0) and brokers (4.6 to 5.2) also displayed increased confidence. Among the main categories of respondent, it was only managers (down to 5.7 from 5.9 last time) who emerged as less likely to be making any new investments over the coming year. Geographically speaking, expectations were up in Europe (from 5.4 to 5.6) and in Latin America (5.4 to 6.6) but down in Asia (6.0 to 5.7) and North America (5.6 to 4.7).
Demand trends (cited by 23 per cent of respondents overall), competition (19 per cent) and finance costs (17 per cent) again featured as the three most significant items likely to affect performance over the next twelve months. Demand was the most significant factor for owners, charterers and brokers, while for managers it was competition which headed the list.
There was a 9 percentage-point fall compared to the last survey in the numbers of respondents who expected finance costs to rise over the next twelve months, down from 51 per cent in May 2010 to 42 per cent this time. This is an all-time low for the survey and a full 24 percentage-point drop on the figure for May 2008. The movement in opinion was most marked amongst owners (down from 50 per cent to 37 per cent), while for managers the fall was from 53 per cent to 45 per cent. The ratio of charterers anticipating higher finance costs remained unchanged at 50 per cent, while brokers were alone in reporting a higher level of anticipation that costs would rise. Geographically, all four major regions covered by the survey were more confident that finance costs would come down – by 10 percentage points in the case of Asia, and by 5 in Europe. The banks came in for a high level of critical comment. One respondent remarked, “Confidence is badly affected by the lack of bank finance and possible further banking crises”, while another expressed regret that “all banks offer high interest rates and hefty costs, which in many cases is not warranted”.
So far as the markets are concerned, the number of respondents who expected rates in the container ship market to increase over the next twelve months reached a survey all-time high of 50 per cent – up from 47 per cent last time and a full 20 percentage points higher than the figure in May 2008. The container ship sector has a lot further to go than other tonnage sectors in terms of getting rates back up to more viable levels, but the indications are that things are moving in the right direction. Predictably, owners and charterers disagreed about what might happen to box ship rates, with 52 per cent of owners expecting them to rise over the coming year (compared to 51 per cent last time) and 42 per cent of charterers (52 per cent last time) thinking likewise.
This unsurprising divergence of opinion between owners and charterers was also evident in the tanker sector, where the number of respondents overall anticipating higher rates fell by 2 percentage points to 48 per cent. Fifty per cent of owners here anticipated higher rates (as opposed to 54 per cent last time), against 45 per cent of charterers, which latter figure, interestingly, is a full 10 percentage points higher than the corresponding one in May this year. There are indications here that expectations are being moderated in line with reality. In May 2008, 31 per cent of owners thought that tanker rates would go up over the next year, while 64 per cent of charterers were of like mind. This is a gap of 33 percentage points. Today, the same gap is down to a mere five points.
Finally, in the dry bulk sector, the 42 per cent of respondents who expected rates to increase was identical to the figure recorded in the previous survey. There were falls (from 40 per cent to 38 per cent, and from 50 per cent to 46 per cent, respectively) in the numbers of owners and managers expecting higher rates, this against an increase (from 39 per cent to 46 per cent) on the part of charterers.
Moore Stephens shipping partner,
Richard Greiner, said, “We should not be too surprised, or indeed disheartened, at the very slight drop in confidence returned by our latest survey. Eighteen months ago, shipping confidence was at an all-time low, and the mood now is considerably brighter, despite continuing political and economic uncertainty. It is understandable that people may be a little wary until they can see how the world economy is developing over a longer period of time.
“The fact that more of the companies responding to our survey than ever before now expect to make some form of new investment over the next twelve months is extremely good news. Without new investment, industry will die, or at best stand still. And there are other reasons to be optimistic. The banks have been urged, in shipping as elsewhere, to start lending money again, and although the responses to our survey suggest that this is not happening quickly or often enough, there is nevertheless evidence to suggest that money is starting to circulate once more. It is also encouraging to hear that greater numbers of respondents are expecting the cost of finance to come down over the next twelve months.
“Generally speaking, there is a much higher level of confidence that freight rates in the main trades will continue to improve over the coming year. Furthermore, the recent continual rises in operating costs have now been arrested, according to Moore Stephens’ soon-to-be-published annual OpCost report, an acknowledged industry standard benchmarking tool for vessel running costs.
“If you have an industry where confidence is holding up despite general economic uncertainty, where there is increased expectation of lower finance costs, where opportunities for new investment are being actively explored, and where continued rises in operating costs are being addressed, the prospects for greater long-term viability must be good.”
