Moore Stephens: Shipping Confidence Slightly Up

Overall confidence levels in the shipping industry rose slightly in the three months to May 2016, according to the latest Shipping Confidence Survey from accountant and shipping adviser Moore Stephens.

In May 2016, the average confidence level expressed by respondents in the markets in which they operate was 5.1 on a scale of 1 (low) to 10 (high). This is a slight improvement on the 5.0 recorded in February 2016, but it is still the second lowest rating in the life of the survey launched in 2008 with a confidence rating of 6.8.

Confidence on the part of shipowners was markedly up, from 4.8 to 5.7, while charterers were also slightly more optimistic than in February, their rating inching up from 3.9 to 4.0.

However, confidence among managers and brokers was down, from 5.5 to 5.1 and from 5.1 to 4.3, respectively.

Geographically, albeit from very low levels last time, confidence was up in Asia, from 4.4 to 5.2, in Europe from 5.1 to 5.2, and in North America from 4.7 to 5.0

“Overall world economic growth is still not moving concertedly in a positive direction so that we have what might best be described as a patchy global economic recovery,” one respondent said.

“Unless there is a drastic change in geopolitical events, shipping markets will remain in their present condition for another 12 months,” another respondent emphasized.

The availability of money for shipping projects was another recurring theme in respondents’ comments.

“Finance is way too cheap and has caused a massive oversupply of tonnage,” one responded said.

However, not everybody agreed and one respondent complained that demands for early loan repayments have been “a huge blow” to shipowners, while another said that unstable income has led financiers to lose confidence in owners.

“Over-supply of tonnage is still the key influencing factor in the market, and there will be no real change until bold decisions are made in respect of scrapping tonnage which is less than twenty years old,” another respondent said.

However, some of the respondents were optimistic.

“Shipping is the major means of transporting goods in the world, and shipping lanes will continue to increase,” one of them said.

The likelihood of respondents making a major investment or significant development over the next 12 months was up marginally on the previous survey, on a scale of 1 to 10, to 4.9 from 4.8 last time, which equalled the figure recorded in February 2009 as the lowest in the life of the survey to date. The confidence of owners in this respect was up significantly, from 4.9 to 5.7, while managers also recorded a small increase, from 5.3 to 5.4. Charterers and brokers, however, were less confident in this regard than they were three months ago, dropping from 5.1 to 4.1 and from 4.4 to 3.5 respectively.

The number of respondents who expected finance costs to increase over the next 12 months was down by one percentage point on last time, to 41%.

In addition, demand trends, competition and tonnage supply are the top three factors cited by respondents as those likely to influence performance most significantly over the coming 12 months.

“If there is one thing certain in the current shipping market, it is the level of uncertainty which is pervading all sectors at the moment,” Richard Greiner, Moore Stephens partner, Shipping Industry Group, said.

“Many of our respondents continue to express serious misgivings about the extent of over tonnage, and about the inadequacy of current levels of demolition activity. One informed estimate recently put world shipbuilding overcapacity at 50%. Other estimates, meanwhile, put first-quarter 2016 demolition levels at roughly 50% more than in the same period the previous year,” Greiner further said.

“It is clear that shipping is in for a hard 12 months. The problems cited by the respondents to our survey are familiar in nature and, in many cases, growing in the extent of their severity. The fact that only 5% of respondents considered regulation to be one of the main factors likely to influence their performance over the coming 12 months is either an indication of the severity and immediacy of other factors, or else an acceptance that there is still time to save up for what is needed to comply with new regulation,” Greiner concluded.

Finally, the cost of achieving aims related to safer, cleaner, more accountable and more competitive shipping will depend on the industry’s ability to rationalize capacity and push up freight rates, according to Moore Stephens.

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