Small rise in ship­ping con­fi­dence

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

Last month, 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, but is still the sec­ond low­est rat­ing in the life of the sur­vey, which was launched in May 2008 with a con­fi­dence rat­ing of 6.8.

Con­fi­dence on the part of own­ers was markedly up this time, 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. Con­fi­dence among man­agers and bro­kers, how­ever, 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.

Eco­nomic and geopo­lit­i­cal un­cer­tainty was up­per­most in the thoughts of many re­spon­dents.

“Over­all world eco­nomic growth is still not mov­ing con­cert­edly in a pos­i­tive di­rec­tion,” said one, “so that we have what might best be de­scribed as a patchy global eco­nomic re­cov­ery.” An­other em­pha­sised, “un­less there is a dras­tic change in geopo­lit­i­cal events, ship­ping mar­kets will re­main in their present con­di­tion for an­other 12 months.” Else­where, “economies are in tran­si­tion, and we have to adapt to a pe­riod when money is not so easy to come by.”

The avail­abil­ity of funds for ship­ping projects, mean­while, was an­other re­cur­ring theme in re­spon­dents’ com­ments. “Fi­nance is way too cheap,” said one, “and has caused a mas­sive over-sup­ply of ton­nage.” Not ev­ery­body agreed, how­ever. One re­spon­dent com­plained, “de­mands for early loan re­pay­ments have been a huge blow to own­ers’ sur­vival plans,” while an­other said, “un­sta­ble in­come due to the col­lapse in the mar­kets has led fi­nanciers to lose con­fi­dence in own­ers.”

Once again, a sur­feit of ton­nage and a paucity of scrap­ping were ref­er­enced by a num­ber of re­spon­dents. One noted, “far too many new­build­ings in the ultra-to-VLOC size range will be hit­ting the mar­ket in the next 12-to-18 months,” while else­where it was noted that what is needed is, “strong scrap­ping, fewer dry new­build­ings, stiffer reg­u­la­tions, bet­ter and more uni­form control.”

An­other re­spon­dent said, “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 20 years old.”

It was not all pes­simism, how­ever. “There are lots of op­por­tu­ni­ties in the mar­ket for smart op­er­a­tors. Those who merely fol­low the lead of oth­ers will, as al­ways, suf­fer, be­cause they do not un­der­stand the mar­ket,” one re­spon­dent in­sisted.

More than one re­spon­dent, mean­while, em­pha­sised that, in many cases, there is sim­ply no al­ter­na­tive to ship­ping.

“Ship­ping is the ma­jor means of trans­port­ing goods in the world, and ship­ping lanes will con­tinue to in­crease. There is still a mar­ket out there, but we can’t all be win­ners, and there is no longer any room for medi­ocre per­for­mance.”

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%. The numbers of own­ers (37%), man­agers (49%) and bro­kers (44%) an­tic­i­pat­ing dearer fi­nance were up by one, 6 and 8 per­cent­age points re­spec­tively, but char­ter­ers’ ex­pec­ta­tions in this re­gard were down by 27 per­cent­age points to just 29%.

De­mand trends, com­pe­ti­tion and ton­nage sup­ply fea­tured again as the top three fac­tors cited by re­spon­dents as those likely to in­flu­ence per­for­mance most sig­nif­i­cantly over the com­ing 12 months. De­mand trends, which were ac­tu­ally down by two per­cent­age points to 24%, re­mained in first place, with com­pe­ti­tion (up 2 per­cent­age points to 23%) in sec­ond place. Ton­nage sup­ply, up one per­cent­age point to 16%, oc­cu­pied third place, one point ahead of fi­nance costs. Op­er­at­ing costs, down by 3 per­cent­age points to 9%, fea­tured in fifth place, ahead of reg­u­la­tion (5%) and fuel costs (4%).

Though over­all sen­ti­ment in the tanker mar­ket was still neg­a­tive, there was a 5 point in­crease (to 23%) in the num­ber of re­spon­dents ex­pect­ing higher freight rates over the next 12 months, and a 3 per­cent­age­point in­crease (to 43%) in the numbers of like mind in the dry bulk trades. But there was a 6 point fall (to 2 %) in the num­ber of re­spon­dents an­tic­i­pat­ing higher rates in the con­tainer ship mar­ket. The net sen­ti­ment in the tanker mar­ket was -11, but +32 and +1 in the dry bulk and con­tainer ship sec­tors re­spec­tively.

Re­spon­dents were asked a stand-alone ques­tion con­cern­ing whether or not the UK should leave the Euro­pean Union. Over­all, 77% of re­spon­dents felt the UK should re­main in the EU. But whereas 79% of own­ers and 75% of man­agers were of that view, in the case of char­ter­ers and bro­kers it was sig­nif­i­cantly lower – 57% and 38%, re­spec­tively. Twenty per­cent of re­spon­dents felt that an EU exit would have some neg­a­tive im­pact on their busi­ness, but 64% said it would have no im­pact at all. So far as UK re­spon­dents alone were con­cerned, 59% thought the UK should re­main in the Euro­pean Union, while 49% thought that leav­ing the EU would have no im­pact at all on their busi­ness.

One re­spon­dent said, “there is likely to be no ma­jor im­pact if the UK votes to leave the EU, but there could be a pe­riod of un­cer­tainty in con­nec­tion with rules and reg­u­la­tions.” An­other, how­ever, pointed out, “ship­ping is a very com­plex in­ter­na­tional busi­ness. Hav­ing an ex­tra layer of bu­reau­crats in Brussels has a neg­a­tive ef­fect on eco­nomic well­be­ing un­der just about any form of govern­ment.”

Richard Greiner, Moore Stephens part­ner, Ship­ping In­dus­try Group, said, “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. Over the three months cov­ered by our lat­est sur­vey, that un­cer­tainty has em­braced a va­ri­ety of in­dus­try-spe­cific is­sues, as well as geopo­lit­i­cal fac­tors rang­ing from the UK ref­er­en­dum on EU mem­ber­ship to the com­par­a­tive slowdown in the Chi­nese econ­omy. Against such a back­ground, any in­crease in ship­ping con­fi­dence – how­ever small – is wel­come.

“Many of our re­spon­dents con­tinue to ex­press se­ri­ous mis­giv­ings about the ex­tent of over­ton­nag­ing, 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. Where ship re­cy­cling is con­cerned, how­ever, 50% of not very much is not enough. As one re­spon­dent to our sur­vey noted, ‘We have still to see 15-year-old ships be­ing sent to scrap­yards in any mean­ing­ful man­ner’.”

“There is, mean­while, lit­tle cheer in the freight mar­kets. In the dry bulk sec­tor, rates are de­scribed as ‘dire’, while it is re­ported that the con­tainer ship mar­ket is see­ing some of the low­est freight rates in its history. The tanker sec­tor is far­ing bet­ter by com­par­i­son, but its for­tunes over the com­ing 12 months will be closely linked to what hap­pens to oil prices. The Baltic Dry In­dex, although re­cov­er­ing from its re­cent all-time low, is languishing by com­par­i­son with its ‘salad days’, and may con­tinue to do so for some time ab­sent a sig­nif­i­cant up­turn in the Chi­nese econ­omy.

“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. The Bal­last Water Man­age­ment Con­ven­tion now stands on the cusp of rat­i­fi­ca­tion at a largely un­quan­tifi­able cost to op­er­a­tors.

“The mood of our re­spon­dents was not uni­ver­sally down­beat, how­ever. A num­ber con­tin­ued to em­pha­sise the fact that other meth­ods of trans­porta­tion are in­vari­ably not a vi­able al­ter­na­tive to ship­ping, while oth­ers stressed that in­no­va­tive op­er­a­tors will al­ways find a way to suc­ceed, in­clud­ing ac­cess­ing the fi­nance needed to do so. And while some com­plained about the dif­fi­culty of se­cur­ing or main­tain­ing fi­nance, 45% of own­ers rated the pos­si­bil­ity of mak­ing a new in­vest­ment over the com­ing 12 months at 7 out of 10 or higher.

“In gen­eral terms, the con­tin­u­ing ad­vent of new tech­nol­ogy and the re­lent­less march of reg­u­la­tion are in­tended to make ship­ping safer, cleaner, more ac­count­able and more com­pet­i­tive - an en­vi­ron­ment that would be a nat­u­ral fit for well-founded op­er­a­tors with sound busi­ness plans and long-term as­pi­ra­tions. But the cost of achiev­ing those aims is high, and ul­ti­mately much will de­pend on the in­dus­try’s abil­ity to ra­tio­nalise ca­pac­ity and thereby push up freight rates.”

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