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Moore Stephens Surveys Shipping Sector Sentiment

by Jason Gorringe,, London

29 July 2009

Overall confidence levels in the shipping industry have shown a slight improvement over the past three months, according to the latest Shipping Confidence Survey from accountant and shipping consultant Moore Stephens. There are however high levels of concern about the glut in the ship manufacturing market, which is expected to continue, and worsen over the next year.

The average confidence level expressed by respondents, on a scale of 1 to 10, was 5.5, compared to 5.4 in the previous survey in February 2009. Owners, managers and charterers all exhibited a small increase in confidence in connection with the shipping markets in which they operate. Confidence among brokers, meanwhile, was marginally down, and the lowest among all categories of respondent. Geographically, respondents in Asia were most optimistic.

Comments generally reflected the downturn in economic markets worldwide. One respondent noted, "The volume of work is the same, but the payments are late, and that is what is killing us". But there was also some optimism, with another respondent surmised that the shipping industry would remain stable until September, when he expected it to slowly improve.

Quite apart from general uncertainty about the world economy and the state of the freight markets, the most commonly recurring area of concern involved the newbuilding market. "The weight of the orderbook is a serious problem," commented one respondent, while another noted, "There is more toxic debt on the newbuilding front still to be revealed". Other comments included, "The glut in the newbuilding orderbook exerts strong downward pressure on confidence levels.”

Elsewhere, one respondent noted, "The entire shipping industry has changed since the business of shipowning moved from being a long-term-asset-based industry to a situation whereby the ships themselves have become a tradable commodity." Another, in keeping with the current popular mood, simply chose to blame the UK government, which "does not care about or understand the shipping industry."

The survey revealed a modest increase in the number of respondents expecting to make a major investment or significant development over the next twelve months. The overall likelihood of such a development was 5.0 out of 10.0 overall, compared to 4.8 in the last survey. Charterers were the most confident in this respect, with a rating of 6.0, while managers also exhibited a significant increase in confidence. Brokers were alone among the various categories of respondents in being less confident than they were at the time of the last survey.

Once again, the survey showed that demand trends were expected to be the single most important factor likely to affect business performance over the coming year, with both competition and the cost and availability of finance ranked together as the second most important factors.

There was a one percentage point fall overall to 46% in the number of respondents who expected finance costs to rise over the coming year. And there was a 13% fall to 41% in the number of charterers who expected costs to rise, bringing them much closer to owners (45%) than they had previously been.

So far as the charter markets are concerned, there was a significant jump in the numbers of owners, managers, charterers and brokers who expected tanker rates to increase over the coming twelve months. In the case of charterers, the increase was 33% on the numbers recorded in the February survey. Confidence was not universal, however. One respondent noted, "Prospects for the tanker sector look very bleak as cargo movements have drastically reduced."

The number of respondents expecting dry bulk rates to increase over the next twelve months rose by 2% points to 48%, with the overall responses this quarter consistent with our last survey in February 2009.

Finally, 33% of respondents to the survey expected containership rates to increase over the next twelve months, compared to 23% last time, while the number anticipating rates in this sector to fall fell from 36% to 23%.

Moore Stephens shipping partner, Richard Greiner says, "This is the first time since the survey was launched in February 2008 that we have seen an increase in overall levels of confidence in the shipping industry. Three months ago we started to see the first indicators of a mood upswing, and this latest survey takes that a stage further. Confidence is infectious, in the same way that pessimism is. It is also encouraging to see an increased expectation of some form of new investment being undertaken over the coming year. In that respect, shipping is no different to any other industry. Without new investment it will struggle to keep pace, and will eventually undergo atrophy."

"The high level of concern expressed by respondents about the effect that the glut of newbuildings may have on the market is not a great surprise. In a way, shipping is paying for the success it enjoyed in the boom years before the markets tumbled, on the basis of which it went on a shopping spree at the world’s shipyards. It is to be hoped that a continuing return of confidence and a resurgence in trade will be instrumental in dealing with a significant part of that glut, while the ingenuity and resources of shipping companies and their financiers will undoubtedly be needed to help alleviate some of the other more punitive consequences of an oversupply of tonnage."

The full report can be found on the Moore Stephens website

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