Overall confidence levels in the shipping industry fell during the three months to November 2014 to their lowest level for two years, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens. The survey revealed increasing concern about the high cost of achieving compliance with new regulations, and ongoing doubts about overtonnaging. But it was not all bad news, with charterers, managers and brokers all more confident than they were three months previously of making a new investment over the coming year.
In November 2014, the average confidence level expressed by respondents in the markets in which they operate was 5.7 on a scale of 1 (low) to 10 (high), down from the 6.1 recorded in August 2014. This compares to the record high of 6.8 when the survey was launched in May 2008.
All categories of respondent recorded a fall in confidence this time, most notably charterers (down to 5.4 from a record high of 6.7 three months ago) and owners (down from 6.2 to 5.5). Confidence on the part of managers, meanwhile, fell marginally from 6.2 to 6.1, while for brokers it was down from 5.3 to 5.0. Geographically, confidence was down in Asia and Europe to 5.8 and 5.6 respectively from the levels of 6.0 and 6.1 recorded three months previously. Confidence in North America, however, held steady at 6.2.
A number of respondents referred to continuing uncertainty in the markets, resulting from a variety of factors. One said, “The market remains directionless. It needs accelerated scrapping, which would make economic sense for owners of older tonnage. But, given the recent drop in fuel costs, such owners could elect to hold on to their ships for the time being.”
One respondent predicted, “Most sectors will continue to struggle along the bottom, kept alive by low interest rates,” while another felt, “There is still too much capacity and an unreasonable expectation of performance levels, given all the new ordering that is taking place.”
Not everybody was quite so pessimistic, however. One respondent said, “The global markets are expected to pick up around mid-2015,” but warned that the viability of shipping depended on the scrapping of 60 percent of all vessels over 20 years’ old and on a drastic reduction in the number of new vessels being built.
Moore Stephens shipping partner, Richard Greiner, says, “Confidence in the shipping industry is at its lowest level for two years, just nine months after reaching a six-year high. A rating of 5.7 out of 10.0 may still be reasonably good in comparison with many other industries, but shipping’s failure to build on the growth in confidence reported in 2013 and early 2014 is undeniably a disappointment.
“The main reason for this may well be the one advanced by the respondent to our survey who complained of ‘too much competition, too many ships, and not enough cargo.’ Add to that the adverse effect which those three factors have on freight rates, and you have some measure of the problems currently facing the industry.
“Meanwhile, shipping continues to pay for the very international nature of the business which, perversely, is also its strength. Ongoing political unrest involving the Middle East and Ukraine does nothing to encourage growth in seaborne trade, while the global economic recovery which appeared to be under way at the beginning of the year seems to have stalled in a number of countries. The Japanese economy is in recession, France has been cast in some circles in the unfamiliar role of the sick man of Europe, and even the newly prosperous economies of China and India are currently performing below expectation.
“The cost of existing and impending regulation in shipping is another problem which is international in nature. Such costs were a recurring theme in the responses to our survey. Sulphur emissions regulations will make shipping an even cleaner and greener industry than it already is, and will encourage the development of more eco-friendly tonnage, but they come at a hefty price. Even that, however, may be small change compared to achieving compliance with the BWT convention which is now very close to ratification. To all this must be added a predicted rise in operating costs of almost three percent this year and next. But it is not all bad news.
“Shipping is still attracting investment. It may not be the type of investment which die-hard traditionalists would prefer, but private equity investors are not known for throwing their money away on lost causes. Oil (and therefore bunker) prices continue to fall, which should have a positive effect on voyage expenses for as long as it lasts. Meanwhile, cargo continues to move, if not always in the volumes and at the rates the industry would like.
“Shipping confidence began 2014 on a high. It is evident that, for now, some of that confidence has been rendered fragile and replaced by a degree of uncertainty. Some of that uncertainty may be resolved in 2015 as the extent of regulatory costs becomes clearer, and the success of recent attempts to reduce overtonnaging can be reassessed. Nevertheless, the market is likely to remain volatile in 2015 as shipping attempts to meet the challenge of finding the right balance between risk and reward.”