Moore Stephens: Shipping Faces a Challenging Year
Accountant and shipping industry adviser Moore Stephens says the shipping sector faces a challenging year in 2011, with freight rates under pressure, crew costs continuing to rise and the banks closely monitoring the future viability of poor performers.
Writing in the latest issue of Bottom Line, the firm’s shipping newsletter, Julian Wilkinson, head of the Moore Stephens Shipping Industry Group, said, “Last year should have been the year that future generations would use to frighten their children into believing that, unless they ate their greens, they would suffer the privations that were visited upon shipping. The truth was somewhat different.
“The shipping markets continued to be challenging in 2010 because, despite positive signs on the demand side, surplus tonnage, a lack of funding, a continuing glut of newbuildings and fierce competition led to downward pressure on freight rates. But confidence levels in the first half of the year still reached eighteen-month highs, not bad for an industry that was supposed to be ailing. Owners started to think about new investments, and about finance costs coming down. Confidence suffered a minor wobble towards the end of the year, but 2010 still closed on talk of IPOs, strategic acquisitions, joint ventures and major investments.
“That confidence should be sustained this year, building on the general forbearance shown by the banks in 2010 when assessing non-performing shipping loans. But we can expect to see the banks commission more independent business reviews to assess the future viability of poor performers.”
Wilkinson added, “Crew costs will continue to rise. They were the only operating costs going up in 2009, will have done likewise in 2010 and will continue to do so in 2011. An executive at a leading shipping line recently welcomed a strong increase in revenue for the first nine months of last year and urged his crews to celebrate by eating cream cake. This didn’t go down well with the unions, who claimed that the results had been achieved through job cutbacks. You can’t eat your cake and have it.”
Wilkinson concluded, “The emphasis this year will be on keeping the cash flowing. The banks know that shipping operations with strong leadership, governance and risk management that have survived the downturn deserve continuing support. They will listen to those with robust investment plans, who in turn will be encouraged by low interest rates.
“Despite continuing concern over the level of newbuildings, it has been suggested that shipping could be back to strength in another two years. By then, there should be more bread to go round, and no need to eat cake. Prudent owners will keep their bankers sweet and their financial advisers close at hand.”