Confidence levels in the global shipping market have fallen to a seven-year low as a glut of cargo ships, weak freight rates and excess liquidity continue to batter the industry, a survey by Moore Stephens, a London-based consulting firm finds.
Overall confidence level fell to 5.3 on a scale of 1 to 10 in the three months to May, the lowest point since the survey was launched in May 2008.
This news comes despite a booming period of growth for the container industry, with the top carriers seeing some of the highest profits they have ever experienced in the last few months.
Respondents complained predominantly about low freight rates and ‘overtonnaging’, while some expressed continuing doubts about private equity funding.
The number of respondents expecting finance costs to rise over the next twelve months, having peaked at their highest levels for fifteen months in the previous survey, was down across all categories of respondent. Charterers, meanwhile, were alone in thinking that rates in the tanker and dry bulk trades were likely to fall over the next twelve months.
One respondent explained: “Boom / bust cycles in the shipping industry usually last about seven years, which is sufficient time for any money lost to return to the market, with interest rates at, say, 6%. But now, because of excess liquidity in the markets and low interest rates, there is a feeling that any recovery will be a very long time coming.”
Another remarked, “after eight years of misery, rates must go up if shipping companies are to survive."
Moore Stephens shipping partner, Richard Greiner
, says, “It is encouraging to note that, despite continuing general economic uncertainty worldwide, and irrespective of the further recent instability generated by the crisis in the Greek economy, confidence in shipping has now risen for the third consecutive quarter. There is an undeniable mood of renewed optimism in the industry. It is tempered by an underlying level of caution, but that is no bad thing. Those who can remember bad markets are less likely to allow themselves to be caught up in further ones.
Most people are expecting rates to go up in the tanker, dry cargo and container ship sectors. There are signs that banks might be willing to lend once more to shipping businesses that have done their homework and those which may have spotted new, viable opportunities in a shipping market which has changed significantly during the past two years. All this is good news for shipping. But with operating costs on a continual upward curve, companies – and particularly those who are looking to expand - would be well-advised to proceed with care," he added.
Meanwhile other indicators, demand trends and competition, decreased by 1%, to 23% and 20% respectively. One respondent said: “Only the big owners can make investments in order to be ready with good tonnage, and not be displaced by competitors, when the market recovers.”
Dry bulk was particularly prominent in the survey results. “The remarkable acceleration of scrapping of larger bulk carriers and the conversion of many newbuildings into tankers will have a positive effect on the dry bulk market sooner than had previously been anticipated - provided, of course, that suicidal private equity has learnt its lesson and accepts that this is not an opportunity to make a quick fortune.”