The trouble with measuring just how bad is the state of the shipping market is that there are plenty of people who remember it worse. For every opportunity to point out terrible rates, massive oversupply, crumbling demand and the like, there are black widows who will remind you that we have not seen ships make the single, short trip from newbuilding berth to scrapyard. It makes measuring the signs of recovery difficult too, especially when the evidence is so divergent across sectors. As illustration, the latest Shipping Confidence Survey from Moore Stephens found that overall, shipping industry confidence levels had recovered slightly from their lowest levels, but that opinions on future fortunes were more divided.
The uptick appears to be related to a slight increase in scrapping and to the start of a gradual relenting of over-tonnaging and is reflected in a marginal increase in planned investments in the coming year. This mood was either borne out (or perhaps disproved) by the finding that charterers were the only category of respondent to report a fall in confidence, in direct contrast to the previous survey, when they were alone in expressing increased confidence.
That suggests they either think that they will be paying more to transport their products or that they are looking at the macro-economic picture of triple-dip recessions and fiscal cliffs and have concluded that demand is weaker than ever. This contrasted with the confidence of owners, managers and brokers. Geographically, confidence in Asia improved, as it did very slightly in Europe and North America.
Unfortunately, judging confidence about the shipping market appears to be a function of how many people one asks. The median view expressed in the report seems to be that markets “will remain low for the next eight months” but there are “signs of recovery based on a significant reduction in the number of new deliveries”.
A decline in new orders, combined with increased pressure to scrap older tonnage as charterers favour more efficient vessels, suggest the foundations of a slim recovery. Scrapping should be hastened by the ratification of the Ballast Water Management convention (and perhaps the entry into force of the Maritime Labour Convention too).
Charterers were singled out for “taking advantage of the situation” and forcing owners to compete for business at rock bottom rates. But criticising your customers for making the most of a situation that was mostly of your creation is a little like inviting alcoholics to a wine tasting and being surprised when they drink all the samples.
Survey respondents generally remained concerned about worldwide economic conditions and, in particular, the financial difficulties of the Eurozone. While there were signs of slight improvement in economic indicators from the US – perhaps enough trigger some freight rate increases, others noted that “at today’s levels, a lot of owners will no longer be around in 12 months’ time.”
Also crucial to recovery was a macro-version of the austerity versus investment argument. Respondents suggested that markets will struggle to recover unless some of the world’s larger economies start investing in weaker national economies rather than continuing with austerity measures.
The finance sector, meanwhile, has begun to realise that it cannot sit on its hands for ever and must inevitably take a position in dealing with defaulting owners. The lenders that remain have been reluctant to move against their clients, for a combination of reasons. They have other, bigger problems to deal with and they lack the expertise to become ship owners themselves. The low interest rate environment has meant that they could afford to turn something of a blind eye to poorly-performing loans. But as one respondent pointed out, lending initiatives are needed from the financial sector, “otherwise the industry won’t be there in a few years’ time”.
Key to the recovery is clearly the management of growth in the Chinese economy but here again, views were divided. There is a temptation to see the transformation of China into a consumer economy as a driver of long-term growth. The counter argument is not so much framed around the risk of slowdown, but more that China will emerge in control of enough tonnage, cargo and manpower to change market fundamentals for good.
Demand trends, competition and finance costs held their places as the top three factors cited as those likely to influence performance over the coming 12 months. Despite this, the likelihood of respondents making a major investment or significant development in this period was up slightly from the previous survey.
Only tanker owners think rates are set to increase over the next 12 months. They were alone in expressing an increased expectation of higher earnings while managers, charters and brokers either saw no change or a negative difference.
In the dry bulk sector, there was a three percentage-point fall in the number of those anticipating rate increases – owners, managers and charterers were united in thinking that dry bulk rate increases would fail to materialise next year - only brokers bucked the trend.
For boxships, there was there was a five percentage-point fall in the overall numbers expecting rates to go up, with expectation levels down across all categories of respondent, most notably in the case of owners. Fewer charterers and managers expect rates to rise either, suggesting these sectors will be slowest to emerge from the downturn.
Despite the headline improvement in confidence, Moore Stephens shipping partner, Richard Greiner reminded the industry that even if economic conditions did improve and rates moved more positively than expected, pressure would remain.
“Shipping is an expensive business in which to operate,” said Greiner. “It is going to become even more expensive, with operating costs expected to continue rising over the next two years [with the costs of compliance on top].” Adding to that the expectation that rates in each of the main sector are expected to remain depressed throughout 2013, his conclusion was 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”.