Overall confidence levels in the shipping industry have declined by more than twenty per cent over the past twelve months, according to the latest Shipping Confidence Survey produced by international accountant and shipping consultant Moore Stephens.
One year on from the first Moore Stephens survey, the average confidence level expressed by respondents, on a scale of 1 to 10, was 5.4, compared to 6.8 in the initial survey in February 2008. In the last four months, the average confidence level declined from 5.6 to 5.4, and was most significantly down amongst owners and managers, with the level falling to 5.4 in each category from previous levels of 5.8 and 6.0 respectively. One year ago, owners and managers recorded confidence levels of 7.1 and 7.2 respectively.
Despite the drop in average confidence levels, a number of respondents felt that things were likely to improve over the coming twelve months and beyond. Comments ranged from, “As owners we have already touched the bottom, and I don’t believe we can go any lower”, to “We are quite confident that there will continue to be good business opportunities in the months ahead, and perhaps this is a good time to enter the market from the point of view of investment.” Other comments included, “In twelve months’ time, the market will have factored in most of the bad news and market confidence will start to return, led by the US, Europe and Asia”, and “Shipping will start an upward trend in the third quarter”.
The survey also confirmed that there are winners in every downturn. One respondent observed that, “Given what is happening with some Chinese yards at present, it would be no surprise to find that some builders may become owners and start operating the vessels they build”. Another observed, “We expect some real opportunities in terms of low-price, quality vessels”, while yet another said, “Cash-rich buyers will be looking at the bargains of the millennium come the summer.”
There was also evidence that the economic downturn has caused particular problems for a number of operators. One respondent noted, "The biggest problem for us today, and probably for the next six to nine months, is counter-party risk. Every time one operator goes bust it has a domino effect on everyone else”. And while some respondents felt that the economic crisis would force a lot of substandard operators out of the market, others were worried about “unhealthy competition in all sectors, because everybody is looking for cashflow.”
Charterers were comparatively upbeat, although the increase in confidence rating over that period to 5.5 (from 4.7) was still some way behind the 6.1 recorded twelve months ago. One respondent commented, “Charterers are playing now in the shipping market like a child plays with its doll.”
The survey also revealed a fall over the twelve-month period – from 5.9 to 4.8 - in the number of respondents who expect to make a major investment or significant development over the next twelve months. Charterers continue to be the most likely at 5.6, followed closely by owners at 5.5.
Over the past twelve months, the perception of those factors which most influence performance have changed significantly. One year ago, it was ship operating costs, crew supply and tonnage supply that led the way among respondents. In the latest survey, demand trends (27 per cent), the cost and availability of finance (21 per cent), and competition (20 per cent) have now emerged as the three factors deemed most likely to influence performance over the coming year.
There was a marked fall over the last four months, from 60 per cent to 47 per cent, in the number of respondents who expected finance costs to rise over the next year. This compared to 56 per cent in the February 2008 survey. The proportion of respondents expecting lower finance costs meanwhile rose in the last four months from 19 to 25 per cent. Charterers (54 per cent) led those who expected costs to rise over the next year, roughly comparable to the situation in March 2008. One respondent explained, “The cost of finance is perhaps less important than the availability of finance. We are finding it very hard to get the debt side of projects together, but things do seem to be easing.”
There was a significant drop compared to the last survey (from 52 to 40 per cent) in the number of respondents who expected tanker rates to fall in the next twelve months. There was also a marked, if not altogether surprising, difference of opinion between owners (25 per cent) and charterers (12 per cent) in terms of those expecting rates to increase. Twelve months ago, 62 per cent of charterers anticipated that tanker rates would increase over the year.
In the dry bulk market, there was an appreciable increase over the last four months, from 35 to 46 per cent, in the number of respondents predicting higher rates, but a significant fall (from 43 to 20 per cent), in the numbers of those anticipating lower rates. Twelve months ago, 40 per cent of respondents were anticipating lower rates. There was a clear disparity between owners and charterers and in the regions Europe led the way in terms of expecting higher rates, followed by Asia and North America.
Finally, 36 per cent of respondents to the survey expected container ship rates to be lower in twelve months’ time, compared to 50 per cent last time, while the number anticipating higher rates in this sector rose from 20 to 23 per cent.
Moore Stephens shipping partner, Richard Greiner says, “Given what has been happening in the world economy, the fall in confidence levels was to be expected. Perhaps the real surprise is that confidence levels have not fallen by even more. The fact that they haven’t is doubtless due to the fact that shipping is historically a resilient and resourceful industry, and because, even in a depressed world economy, there is still sufficient demand for global trade which can only be transported by sea.
“There was evidence of optimism from a number of respondents, even if much of it was predicated on the basis that things could hardly get worse. Examples include, ‘As soon as the financial markets stabilise, the shipping markets will be the first to respond’, and ‘There are clear signs that trade and shipping are picking up in some parts of the world’.
“It is good to see a return of confidence on the part of charterers, albeit only to the fairly low levels of twelve months ago, and never mind that this may simply be a reflection of the lower rates in today’s freight markets. Shipping is a cyclical industry, and the current slump in rates is all the more keenly felt now because it comes on the heels of a prolonged period of buoyancy. Those who ride – and survive – the cycle will, as always, be those who are best prepared to do so.”
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 owners, charterers, brokers, advisers, managers and others.