DECEMBER 18, 2013 — Overall confidence levels in the shipping industry rose to their highest level for more than three years over the three-month period to November 2013, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens. There was encouraging news on freight rates, and evidence of an increased willingness to invest. But concern persists on overtonnaging, operating costs, and the cost of regulation.
Moore Stephens shipping partner, Richard Greiner, says, "The findings of this latest survey provide more good news for the shipping industry. It is now fifteen months since we recorded a decline in shipping confidence. There is an old adage which says that confidence is contagious. If that is true, shipping certainly seems to have caught the bug.
In November 2013, the average confidence level expressed by respondents in the markets in which they operate was 6.1 on a scale of 1 (low) to 10 (high), compared to the 5.9 recorded in the previous survey in August 2013. This is the highest figure since the 6.2 recorded in August 2010. The survey was launched in May 2008 with a confidence rating of 6.8.
Still, despite the overall improvement, shipowners were the only category of individual respondent to post an increase this time, from 5.8 to 6.2, the highest figure recorded since May 2010. Confidence on the part of managers, however, was down slighly from 6.2 to 6.1, while for charterers there was a drop from 6.3 to 5.7. Geographically, confidence was down in Asia (from 6.1 to 5.9) but up in Europe (from 5.9 to 6.1) and in North America, from 6.0 to 6.6.
The mood of optimism apparent in a number of responses was typified by the respondent who noted, "We clearly see an upswing in the markets when talking to various people at various locations in the last couple of months. There is, for the first time in a long while, a general feeling of optimism. Furthermore, the economic indicators, both small and large, all over the world, are pointing in the direction of recovery. We cannot expect it to reach the same levels as in 2007/2008, but a sustainable level of confidence is much better than skyrocketing markets because the higher you climb the lower you might fall."
Another respondent pointed out, "The light we see at the end of the tunnel is not, as had been feared, a train coming towards us. We are quietly optimistic, with supply and demand seeming to come into balance, despite concerns over the amount of new orders being placed."
The overriding concern on the part of respondents once more related to the levels of excess tonnage both in the market and about to enter it.
"There is too much shipbuilding capacity which, coupled with the entry of new investors, will lead to a continuation in the current oversupply of tonnage and low rates," said one respondent. Another noted, "We need to convince owners to stop building ships, especially tankers," while another observed, "There is a large surplus which is unlikely to be removed for two or three years."
One respondent said, "Our principal concern is the perennial ability of owners to kill off improvements by increasing the supply of vessels in every sector," while another feared, "The higher average rates we are likely to see in 2014 will be killed off by massive new deliveries in 2015." Yet another observed, "Owners must be disciplined when placing new orders, even if they have the luxury of using other people's money."
Operating costs and the cost of regulatory compliance also continued to concern respondents
The likelihood of respondents making a major investment or significant development over the next twelve months was up on the previous survey, on a scale of 1 to 10, from 5.5 to 5.8 which, as with overall confidence, is the highest figure recorded since August 2010. The figure for managers was up from 5.8 to its highest ever figure of 6.1, while that for owners was also up, from 5.8 to 6.0. Although charterers recorded a fall, from 6.7 to 6.4, they remain the most optimistic category of respondent in terms of the likelihood of making a new investment.
The number of managers rating the likelihood of making a new investment over the next twelve months at 7.0 out of 10.0, or higher, was up from 45 percent to 51 percent , while the number of owners who thought likewise was up by one percentage point from 47 percent to 48 percent . The percentage of charterers of like mind, however, was down from 72 percent to 45 percent . Geographically, expectation levels of major investments were up in both Asia and Europe, from 5.5 to 5.7 and from 5.6 to 5.8 respectively, and in North America from 5.0 to 5.8.
One respondent said, "While earnings and income are low, there is still a great deal of activity involving planning and preparing for the future, and indeed we are investing with a very positive attitude." Another noted, "Some major owners have the funds available to acquire tonnage. But the key is timing, and too many big shipping companies are intent on looking good on paper despite the fact that they are actually drowning."
A number of respondents referred to the increasing involvement in the industry of non-shipping investors. One said, "The risk of overcapacity in all sectors has increased now that so many non-shipping investors have discovered the shipping market", while another noted, "Over the past five years we have seen a lot of non-shipping investors enter the market, and they have now seen that shipping is not an easy business. But we are hopeful for the future, and now is certainly not the time to leave the table."
Demand trends, competition and finance costs once again featured as the top three factors cited by respondents overall as those likely to influence performance most significantly over the coming twelve months. The overall numbers for demand trends and finance costs were down by one percentage point to 23 percent and 15 percent respectively, while competition was unchanged at 19 percent . Tonnage supply (unchanged at 13 percent ) featured in fourth place, ahead of fuel costs (static at 10 percent ) and operating costs, another non-mover, at 9 percent.
Demand trends remained the number one performance-affecting factor for owners, unchanged at 25 percent . Tonnage supply, meanwhile, was up one percentage point to 17 percent in joint-second place with finance costs, up 2 percentage points. For managers, meanwhile, competition was in first place, up 2 percentage points to 22 percent , the highest figure in the life of the survey. Demand trends, unchanged at 15 percent , featured in second place ahead of finance costs, down four percentage points to 14 percent .
For charterers, demand trends, although down by 7 percentage points to 26 percent , featured in first place, ahead of competition (up 2 percentage points to 22 percent ), and tonnage supply, unchanged at 16 percent .
Geographically, demand trends were the most significant factor for respondents in Asia (up by one percentage point to 24 percent ), Europe (down to 22 percent from 24 percent ) and North America (up by 3 percentage points to 35 percent , the highest figure recorded since the survey was launched). Competition and finance costs, in that order, made up the top three performance-affecting factors in both Asia and Europe, while in North America it was competition and tonnage supply.
There was a one percentage-point fall (from 41 percent to 40 percent ) in the number of respondents overall who expected finance costs to increase over the next twelve months. The number of respondents expecting finance costs to come down, meanwhile, fell by two percentage points to 9 percent , which was nevertheless still the second-highest figure recorded in this regard since August 2011. Owners were the only main category to record an increase in the numbers of respondents expecting higher finance costs (up from 36 percent to 41 percent ). The figure for brokers was down from 50 percent to 36 percent , while both managers (down from 44 percent to 40 percent ) and charterers (down ten percentage points to 28 percent ) recorded all-time survey lows in this respect.
The number of respondents in Asia anticipating an increase in the cost of finance fell by 4 percentage points to 49 percent , while in Europe the numbers were up from 33 percent to 35 percent . In North America, meanwhile, the numbers anticipating higher finance costs fell sharply from 57 percent to 33 percent .
One respondent said, "Financing is a big problem", while another noted, "It is difficult to finance new projects, given unsatisfactory returns on investment and perceived risk levels on the part of banks."
Turning to the freight markets, there was, for the second survey in succession, an increased expectation of higher rates in the tanker and dry bulk sectors. One respondent claimed, "Rates have not reached this level since October 2008." In the containership market, meanwhile, confidence was maintained at existing levels.
The number of respondents overall who expressed an expectation of higher rates in the tanker sector over the next twelve months was up by 5 percentage points to 43 percent , the highest figure since May 2011. Owners led the way, with 52 percent anticipating higher rates, as opposed to 37 percent last time. Managers' expectations in this regard were up by one percentage point to 37 percent , but 40 percent of brokers (as opposed to 35 percent last time) thought that tanker rates were likely to go up over the coming year. Charterers, however, were of a different mind, with the number anticipating higher tanker rates falling from 43 percent to 36 percent .
Geographically, the prospects for increased tanker rates were deemed higher this time by respondents in Asia (up from 39 percent to 46 percent ), in Europe (up from 36 percent to 40 percent ) and in North America (up by 40 percentage points to 83 percent ).
In the dry bulk sector, meanwhile, there was a 14 percentage-point increase, to 56 percent , in the overall numbers of those anticipating rate increases. This is the highest figure recorded in the life of the survey, and 100 percent up on the corresponding figure when the survey was launched in 2008. Managers, up by 22 percentage points to a survey high of 60 percent , led the way, followed by owners, up 6 percentage points to 58 percent , another all-time high.
Even charterers, recording a 5 percentage-point increase to 47 percent , and brokers (up by 25 percentage points to 46 percent ) were looking on the bright side.
Expectations of higher dry bulk rates over the next twelve months were up to all-time survey highs in both Asia and Europe, rising by 21 percent and 13 percent respectively to levels of 63 percent and 55 percent . The numbers were also up, by 8 percentage points to 64 percent , in North America.
One respondent said, "The dry cargo market is coming into balance and, with the new eco-ships on the way, everything looks very positive for those owners who have the right fleet profile and minimal counter-party risk." Elsewhere, however, it was noted, "Strong dry bulk markets can only last for a very short time, making it difficult to compensate for the poor market conditions we have seen in recent years."
In the containership market, the numbers expecting rates to increase over the coming twelve months was unchanged at 30 percent. Owners' expectations were up by 3 percentage points on last time to 30 percent, while optimism on the part of brokers rose from 25 percent to 29 percent. The expectations of managers rose two percentage points to 30 percent , while those of charterers held steady, also at 30 percent. Geographically, expectations of improved containership rates were up by 3 percentage points in Asia to 36 percent, by 9 percentage points in North America to 44 percent , and unchanged in Europe at 27 percent.
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 shipowners, charterers, brokers, advisers, managers and others.