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 47 percent. The number of owners anticipating dearer finance fell by 18 percentage points to 35 percent, but the number of charterers of like mind rose to 67 percent, from 50 percent previously. One respondent said, “We need a more realistic approach from those banks which are helping to keep zombie companies afloat.
Demand trends, competition and port congestion featured as the top three factors cited by respondents as those likely to influence performance most significantly over the coming 12 months. The numbers were down by four percentage points (to 21 percent) for competition, which was pushed into second place by demand trends, where there was a one percentage point increase, to 24 percent, in the figures. Port congestion, up 15 percentage points to a new survey high of 17 percent, featured in third place, followed by finance costs, in respect of which there was a four percentage point drop to 14 percent. Regulation (up five percentage points to 9 percent) featured in fifth place, followed by operating costs (down five percentage points to 6 percent). Fuel costs featured as a significant factor for just 4 percent of respondents, compared to a survey high of 16 percent in May 2011. One respondent said, “Excessive regulation makes control of costs even more difficult. Furthermore, what is the point of creating rules when international authorities cannot agree how to apply them, such as in the case of ballast water management? There was a fall in the number of respondents anticipating higher freight rates in the tanker, dry bulk and container ship sectors compared to the figures for August 2015. The net sentiment was nevertheless positive (+7) in the tanker market and in the dry bulk sector (+16), although negative (-5) for container ships. One respondent said, “Many tanker owners are guided more by hope than by economics. When statistics indicate a tonnage shortage in two years’ time, they order ships now in the hope that freight rates will be higher once the ships have been built. But if other owners do the same, overcapacity will result in low rates and a fall in vessel values – a lose-lose situation.
Elsewhere, it was noted, “Overall confidence in the state of the dry bulk market is currently very low, and any hope of the start of a recovery is at least 12 months away.” In the container ship sector, meanwhile, one respondent commented, “Many owners of container ships seem to order new tonnage whether it makes economic sense or not, just to maintain market share. Moore Stephens shipping partner Richard Greiner says, “The inherent volatility of the shipping industry is part of its appeal to investors, for whom there is seldom any reward without risk. But confidence historically fluctuates more in a volatile market than in a stable one, and shipping is nothing but volatile at the moment. The small drop in industry confidence levels over the three months to end-November is therefore not a great surprise.
Global unrest in general, and in particular the crisis involving Syria, does nothing to help confidence in industries such as shipping, which operate across international borders. Neither does the migrant crisis in Europe, which has escalated significantly in recent months, nor the Paris bombings. Shipping must expect to suffer the downside of such incidents just as, in better times, it can expect to benefit from positive geopolitical changes.
“Informed awareness and the ability to react in a timely manner are the best defense against external influences on the industry. But what of those other inhibitors of shipping confidence, which might be said to be of the industry’s own making? Firstly, there is the over-arching problem of excess tonnage. There are too many ships to carry the available cargoes. Doubts also persist about the level of newbuilding orders at a time when the market does not look to be in a good position to sustain them. Only increased ship recycling and rationalization of business plans can effectively address these issues, and the need to take a proactive approach is borne out by the current state of the markets. The tanker market is producing comparatively good earnings at the moment, but its fortunes are too closely linked to the price of oil for anybody to accurately predict how long this will last. Expectations of improved rates over the next 12 months in the three main tonnage categories covered by the survey are down. In the case of the dry bulk sector, such expectations are at their lowest since August 2012, while in the container ship market one has to go back to October 2008 to find a lower figure. Indeed, our respondents recorded an overall negative sentiment in respect of the container ship market. This paints a rather austere picture for the immediate future of the industry, which is also facing the burgeoning challenge of funding regulatory compliance with the imminent entry into force of the Ballast Water Management convention. But it is by no means all bad news. Operating costs fell in both 2013 and 2014, which is evidence of the application of a measure of control which shipping has not been accustomed to seeing in recent years. Meanwhile, 50 percent of those shipowners who responded to our confidence survey rated at 7 out of 10 or higher the prospect of making a major investment over the next 12 months. Owners were also much more confident than they were three months ago that ship finance was going to be cheaper over the coming 12 months. Well-informed owners and investors are not in the habit of throwing money away on lost causes. Shipping remains a good business to be in, its continued existence assured by its singular capabilities. The outlook remains volatile, but exciting.”
Source: Moore Stephens