Overall confidence levels in the shipping industry recovered slightly from their lowest level for over four years in the three months ended November 2012, according to the latest Shipping Confidence Survey from international accountant and shipping adviser Moore Stephens.The small uptick in confidence appears to be related, among other things, to an increase in scrapping and to the start of a gradual improvement in the overtonnaging crisis which has dogged the industry for several years. Improved confidence is also reflected in a marginal increase in planned investments over the coming year.
In November 2012, the average confidence level expressed by respondents in the markets in which they operate was 5.6 on a scale of 1 (low) to 10 (high), compared to the figure of 5.3 recorded in the previous survey in August 2012. The survey was launched in May 2008 with a confidence rating of 6.8.
Charterers were the only category of respondent to report a fall in confidence over the three-month period, in direct contrast to the previous survey, when they were alone in expressing increased confidence in the market. Charterers’ confidence rating this time of 5.6 was marginally down on the 5.7 recorded in August 2012. Confidence on the part of owners, meanwhile, was up to 5.5 from 5.1 last time, while managers (up from 5.9 to 6.0) and brokers (up from 5.0 to 5.3) saw more reason to be optimistic this time around.
Geographically, confidence in Asia was up to 6.0 from the all-time survey low of 5.4 recorded in August 2012. Confidence was also up in Europe (from 5.2 to 5.3) and in North America (from 5.5 to 6.6).
A number of respondents saw encouraging signs in terms of a correction in the overtonnaging crisis which has gripped the market in recent years. “Markets will remain low for the next eight months,” said one, “but there are signs of recovery based on a significant reduction in the number of new deliveries.” Another noted, “New orders have declined, and the opportunities envisaged by those owners who ordered newbuildings which are now in service will start to materialise, while older tonnage will disappear as charterers look for newer, more efficient vessels.” Yet another emphasised, “The overhang of newbuildings is shrinking. New orders are drastically reduced, and scrapping is accelerating.”
Scrapping featured in a number of responses to the survey. “New scrapping and recycling initiatives will have a major impact on the market, as will the Ballast Water Management (BWM) convention,” said one respondent, while another observed, “As more and more older ships go for scrapping, and businesses start to recover, freight rates should increase and the market will start to recover.”
Not everybody was convinced, however, that things were moving in the right direction. “More demolition and greater discipline in respect of newbuildings is required before the upturn can begin,” said one respondent, while another emphasised, “Even though scrapping levels are high, the number of newbuildings on the market will continue to result in oversupply and keep freight rates depressed.”
Charterers came in for criticism from respondents. One noted, “Charterers are simply taking advantage of the situation by pitting owners against each other in order to achieve lower than last-done rates, particularly in the case of older vessels.”
A number of respondents expected to see the start of a recovery in the markets sooner rather than later. “We firmly believe that shipping will boom in the next three months, especially the tanker markets,” said one. Others put a longer timeline on any recovery, such as the respondent who remarked, “2013 is a lost year, but owners, managers and charterers are expecting an improvement in 2014.” Others thought it might take longer still, however, such as the respondent who predicted, “A second crisis is on the way.”
The number of respondents overall who expressed an increased expectation of higher rates over the next 12 months was down.
Geographically, expectations of improved rates were up in Asia (from 30 per cent to 36 per cent), but down in Europe (from 34 per cent to 22 per cent) and in North America, from 41 per cent to 39 per cent.
Moore Stephens Shipping Partner Richard Greiner said: “It is encouraging to see confidence levels once more moving in the right direction. Moreover, as we sit on the cusp of another long, dark northern hemisphere winter, it is very pleasing to see an increased expectation of new investment being made in the industry. This increased willingness to invest is due in part to what many see as the first signs of a correction in the industry’s tonnage overcapacity problems. Scrapping activity has increased, although there is simply not enough demolition capacity in the world for this to be a solution on its own. Some sanity, born of hard experience, has returned to the newbuilding sector following the pell-mell pursuit of new tonnage which characterised shipping’s salad days, which now seem so distant. Opportunities are starting to open up for the savvy and the solvent, and now is a good time to invest in the right deal.
“Our survey revealed a high level of interest in China, with a number of respondents suggesting that the country is a source of hope for restoring the fortunes of the shipping industry. History suggests that such hopes are not always the most reliable foundation on which to build a future, however, and China has its own economic problems to deal with at present. The economic problems of the eurozone, meanwhile, continue to be felt in the industry, and are balanced only slightly by the perceived beginnings of a recovery in the US economy.
“Fewer of our respondents are expecting ship finance to become more costly over the coming year. If that is indeed the case, and if such finance also becomes more readily available, this will help to turn investment aspirations into reality. But it would be wrong to think that we have seen the end of corrective action by the banks. Bankruptcies, Chapter 11, and loan loss provisions are likely to be a regular part of the ship finance lexicon for some time to come.
“Shipping is an expensive business in which to operate. It is going to become even more expensive, with operating costs expected to continue rising over the next two years. Higher fuel costs and more expensive crews, together with increased expenditure in other categories, will keep shipping honest for the foreseeable future – and that is without the cost of having to comply with the BWM convention and other regulatory requirements. If you add to that the expectation that rates in each of the main tonnage categories are expected to remain depressed throughout 2013, the inescapable conclusion is that those companies that emerge intact and profitable from one of the darkest periods in recent shipping memory will be among the leanest and greenest the industry has ever seen.”