Shipping sector reveals strong apprehensions in new survey

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First_level_of_twistlocks_on_a_containership_deckOverall 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” of London-based global consultancy Moore Stephens.

Respondents to the survey identified overtonnaging as the biggest confidence buster, 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 among respondents 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, said the report.

Charterers recorded the biggest fall in confidence, down to 3.9 from 5.4 in the previous survey. The confidence of owners was also down (from 5.5 to 5.4), while managers’ confidence was slightly up, from 6.1 to 6.2. Confidence in the broking sector was unchanged at 5. Geographically, confidence was down in all main areas covered in the survey.

A surplus of tonnage, particularly in the dry bulk trades, dominated the comments of those who responded to the survey. Falling oil prices were another recurring theme, while 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.

The survey revealed that the likelihood of respondents making a major investment or significant development over the next 12 months was down on the previous survey, on a scale of 1 to 10, from 5.3 to 5.1, the lowest figure since February 2012, although managers were more confident than they were three months previously.

The number of respondents who expected finance costs to increase over the next 12 months was down by eight percentage points to 32 percent, the lowest figure in the seven-year life of the survey.

Demand trends, competition, and tonnage supply were cited as the top three factors likely to influence performance most significantly over the coming 12 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.

Turning to the freight markets, there was a fall in the number of respondents anticipating improved rates in the tanker sector over the next 12 months, but increased expectation of higher rates in the dry bulk and container ship trades. Overall net sentiment was positive in all three main tonnage categories covered by the survey.

Elephant in the room

Richard Greiner, a partner at the company’s shipping industry group, said, “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.”

Greiner noted that the current Baltic Dry Index has reached a 30-year low of 509 from 12,000 in mid-2008. “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,” he added.

“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.”

But he found a positive side to the “easy access to non-traditional ship finance” which some respondents blame for the overtonnaging issue.

He pointed out: “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.”

Greiner said that the apparent increase in the interest of banks and private equity investors in the shipping industry heralds a change from the traditional model familiar to established players. “But different doesn’t have to be bad and, however volatile the market, new investment is essential to both survival and growth.”

He concluded. “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.”

Photo: Danny Cornelissen