June 28, 2010
Survey shows uptick in shipping industry confidence
Overall confidence levels in the shipping industry are at their highest level since May 2008.
A Shipping Confidence survey indicates that shipowners, managers, charterers and brokers all feel more confident than three months ago about the shipping markets in which they operate, and more optimistic about making a major investment in the coming year.
The survey was conducted by Moore Stephens LLP, a member firm of Moore Stephens International Limited, a leading accounting and consulting group. 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.
The average confidence level, on a scale of 1 to 10, expressed by respondents in the markets in which they operate was 6.3. This compared to 5.9 in the previous survey in February 2010 and to the record high of 6.8 recorded in the first Moore Stephens survey in May 2008.
Ship managers (up from 6.2 to 6.5) emerged as the most confident sector, closely followed by shipowners (up from 5.9 to 6.3) and charterers (5.8 to 6.2). Shipbrokers, historically the least optimistic respondents, reported a noticeable rise in confidence, from 5.5 to 5.9.
Geographically, Asia recorded the most significant increase in confidence (from 6.0 to 6.5) among the four main regions covered by the survey (Asia, Europe, North America and Latin America) while in Europe the rise was from 5.8 to 6.1.
"Our first-quarter 2010 was our worst in ten years, but in April we saw things start to pick up dramatically, partly because some cash-hungry companies started to unload non-core assets," noted one respondent.
Other comments included, "We have passed the crisis point much sooner than anybody anticipated", and, "Despite all the economic and financial troubles, the demand for world trade will continue to benefit shipping".
"Everything still seems to be dependent on Chinese demand and purchasing power," observed one respondent, with another noting, "The demand for iron ore from China and for coal from India will continue to drive the markets." A significant number of respondents emphasized the positive impact that Chinese and Indian demand would have on the dry bulk market but hasome misgivings about whether there would be sufficient levels of available tonnage to meet the anticipated demand.d
Concern about the world economy and the financial situation in Greece was also evident in the responses to the survey. "Dark clouds in terms of a potential new European financial crisis led by Greece and supporting countries might be a challenge for international shipping markets," said one respondent.
The survey also revealed ongoing concern with regard to tonnage over-supply.
"The overhang of newbuilding orders has not yet been sorted out, and the market is likely to remain soft as a result," wrote one respondent. Another predicted, "Deliveries delayed in the second half of 2009 and the first half of 2010 will finally catch up on the market and result in an over-supply of tonnage."
Expectations of making a major investment or significant development over the next twelve months were up overall from 5.3 to 5.6, on a scale of 1 to 10, the highest level since the 5.9 recorded in May 2008. While owners recorded an increase from 5.5 to 5.9, and managers went from 5.7 to 5.9, charterers produced the biggest increase over the past two years, moving from 4.8 in May 2008 to 5.7 in the latest survey. Once more, increased confidence was evident across all four main regions covered by the survey, with Asia's expectation of 6.0 exceeding the 5.9 recorded in the first survey.
"With a loosening up of finance," said one respondent, " we can expect to see a major increase in mergers and acquisitions of weaker operators as the survivors of the recession look to improve their share of a smaller market". Another, citing the cyclical nature of shipping, said, "Sensible investment could prove profitable over a longer period of time."
Tempering the optimism somewhat, however, was the comment that, "The number of variables is very high, and does not inspire companies to invest a great deal of confidence in any sort of expansion over the next twelve months".
Demand trends (cited by 24 percent of respondents overall), competition (18 percent) and finance costs (16 percent) continued to be thought the three most significant factors likely to affect performance over the next twelve months.
"Competition is very strong," remarked one respondent, "and everybody is trying their best, but at the same time they are being pressurized by lower rates and higher fuel and operating costs". Even so, the figure for demand trends represents a three percentage-point fall on the previous survey, while the totals for competition and finance costs were also down, each by one percentage point.
For the first time, ship managers identified operating costs as a significant factor affecting performance, a total of 18 percent of respondents in this category putting it in second place, ahead of competition. Elsewhere, fuel costs continued to influence charterers' thinking with regard to performance factors, the total of 15 percent of respondents here representing a five percentage-point rise on last time.
"Crew availability, quality and cost," noted one respondent, "have a direct impact on operating costs and therefore on the business profile of shipowners and managers. And the upward trend in the cost of essentials such as fuel and lube oil is another area of major concern".
In direct contrast to the previous survey, there was a fall in the number of owners, charterers, managers and brokers who expected finance costs to rise over the next twelve months. Overall, 51 percent of respondents expected a rise, compared to 53 percent last time. In the case of charterers, the figure was down 6 percentage points to 50 percent, while for owners the movement was from 52 percent to 50 percent. "Finance seems to be loosening up a little," said one respondent, "especially in international markets. Last year lenders seemed to be focusing on cleaning up their balance sheets as opposed to lending money, but now they are more interested in adding assets, especially quality assets". Meanwhile, another respondent noted, "The banks' refusal to finance shipping projects damaged trust in the industry but, once this comes back, owners will be able to benefit from low prices by investing in ship purchases. Even the banks know that the first requirement of a good deal is a good purchase price". However, a warning note was sounded by a respondent who observed, "Everyone is surprised by the lack of bankruptcies in the shipping industry, and are wondering if the banks will be stricter when the overall market improves".
So far as the markets are concerned, the renewed confidence evident in the previous survey that rates were likely to increase over the next twelve months was largely sustained. Owners and managers showed increased confidence that rates would rise in all three tonnage categories covered by the survey, but charterers saw the market quite differently, with the exception of the container ship sector.
In the tanker market, the number of respondents overall who expected rates to go up rose from 46 percent in February to 50 percent this time, the highest level since the survey began. The biggest increase in optimism was shown by owners, with a ten percentage-point rise from 44 percent to 54 percent, followed by managers, up from 46 percent to 51 percent. But there was a fall in expectation on the part of charterers, 35 percent of whom expected rates to rise this time as opposed to 59 percent last time. Charterers' opinions appear to be extremely volatile, with just 22 percent of respondents in that category having anticipated tanker rate increases when surveyed in November 2009. But respondents to the survey, on the whole, were more positive. "The situation today is much better than it was twelve months ago," said one respondent, "and we suspect that the general world economy conditions have not yet filtered through to the tanker business". Other comments included, "Tanker trades have not been as badly hit as many people expected", and "Tankers are off the highs of two years ago, but still healthy".
It was a similar story in the dry bulk trades, where the expectation of rate increases was up overall from 38 percent to 42 percent, the highest figure for twelve months. 50 percent of managers anticipated higher rates, as opposed to 43 percent last time, and 40 percent of owners (35 percent last time). But only 39 percent of charterers thought likewise, as opposed to 42 percent in the previous survey. The number of charterers anticipating lower rates, meanwhile, rose from 24 percent to 39 percent. "Dry bulk remains healthy", said one respondent, while another noted, "The dry market has picked up considerably and is expected to go higher still in the near future".
There was greater unity of opinion in the containership sector, meanwhile, where the overall expectation of rate increases was up from 45 percent to 47 percent, the highest level for two years. Charterers led the way with a seven percentage-point increase, from 45 percent to 52 percent. Owners' expectations of an increase were up from 46 percent to 51 percent, and among managers from 42 percent to 43 percent.
"Containers are on the rebound" ventured one respondent.
Moore Stephens shipping partner, Richard Greiner, says, "It is encouraging to note that, despite continuing general economic uncertainty worldwide, and irrespective of the further recent instability generated by the crisis in the Greek economy, confidence in shipping has now risen for the third consecutive quarter. There is an undeniable mood of renewed optimism in the industry. It is tempered by an underlying level of caution, but that is no bad thing. Those who can remember bad markets are less likely to allow themselves to be caught up in further ones.
"Most people are expecting rates to go up in the tanker, dry cargo and container ship sectors. There are signs that banks might be willing to lend once more to shipping businesses that have done their homework and those which may have spotted new, viable opportunities in a shipping market which has changed significantly during the past two years. All this is good news for shipping. But with operating costs on a continual upward curve, companies - and particularly those who are looking to expand - would be well-advised to proceed with care."