Shipping confidence rises for fourth successive quarter

Overall confidence levels in the shipping industry increased in the three months ended May 2012, to reach their highest level since February 2011, according to the latest Shipping Confidence Survey from leading accountant and shipping consultant Moore Stephens. This is the fourth successive quarter in which there has been an improvement in confidence, leading to an increased expectation of new investment on the part of respondents, despite an anticipated increase in the cost of finance over the next 12 months.

In May 2012, the average confidence level expressed by respondents in the markets in which they operate was 5.7 on a scale of 1 (low) to 10 (high), compared to the figure of 5.5 recorded in the previous survey in February 2012, and to the 5.6 recorded one year previously, in May 2011. The survey was launched in May 2008 with a confidence rating of 6.8.

The biggest increase in confidence was recorded by ship managers, up from 5.2 to 6 this time, the highest figure for this category of respondent since February 2011. Confidence among owners and charterers remained unchanged this time, at 5.6 and 5, respectively. Brokers (down from 5.6 to 5.2) were alone among all respondents in being less confident about the market than they were in February 2012. Confidence was up in Europe for the fourth successive quarter, from 5.3 to 5.6, stable in Asia at 5.7, and down in North America from 5.6 to 5.5.

A number of respondents were upbeat about prospects for the market, despite admitting that any recovery would have to start from a comparatively low base. "If we are still alive now, after all the vessels that have entered the market and all the banks that have pulled out, there is a good chance that better times await us," said one. Some suggested that a recovery in the markets was achievable in the short term, typified by the comment from the respondent who noted, "The volume of business activity is expected to increase in the next quarter." Most, however, were taking the longer view. "We will see the imbalance between tonnage supply and demand corrected in early 2014," said one. "Until then, we hope to see ship operators, cargo interests and charterers exercising good supply-chain values based on reasonable freight and time charter rates in order to get the industry through these tough times".

Respondents to the survey expressed a high level of concern about the global economy, and particularly about problems within the eurozone. One said, "The European economic crisis is worsening, leaving ship financing at the crossroads". Two familiar causes of concern were again evident in the responses to the survey, the first of which was summed up by the respondent who emphasised, "There are too many ships coming onto the market". One respondent foresaw a different kind of problem arising from the surfeit of tonnage, warning, "For the first time in a long while, shipping could face a situation where newbuildings currently being delivered may be rendered technically obsolete in five years' time by new ships being ordered today which, due to technical innovations, may be up to 20 per cent cheaper to operate."

Meanwhile, despite the recent fall in global oil prices, and consequently in the price of bunkers, fuel costs continued to occupy the thoughts of respondents. "The ultimate squeeze nowadays really comes from the cost of bunkers," said one respondent. "On top of the high price of oil, refineries are producing less and less marine product, putting further pressure on bunker prices".

The overall number of respondents expecting to make a major investment or significant development over the next 12 months rose, on a scale of 1 to 10, from 4.9 to 5.3, the highest figure since the 5.6 recorded in May 2011. All categories of respondent were more confident in this regard than in the previous survey, most notably charterers, whose expectation rating in respect of major investments was up from 4.9 to 5.8. The rating for owners was up from 5.2 to 5.6, and for managers from 5.2 to 5.5. Forty-five per cent of charterers, and 40 per cent of both owners and managers, assessed the likelihood of their making an investment at 7 out of 10 or higher. Expectation levels of major investments were up in all geographic areas covered by the survey, with the exception of North America (down from 5 to 4.5). The biggest increase was in Europe (up from 4.8 to 5.3).

One respondent said, "There will be excellent opportunities for cash buyers over the next 12 to 18 months, as banks increasingly foreclose or as distressed owners are forced to sell in order to survive". Another noted, "There is an opportunity to invest in eco-friendly vessels at very low cost."

Demand trends, competition and finance costs were the top three factors cited by respondents overall as those likely to influence performance most significantly over the coming 12 months. But the numbers in each category were down—in the case of demand trends from 22 per cent to 21 per cent, competition (down from 20 per cent to 18 per cent) and finance costs (down one percentage point to 16 per cent). Fuel costs featured in fourth place, up from 12 per cent to 14 per cent, the second highest figure achieved in the life of the survey, behind only the 16 per cent recorded one year ago, in May 2011. Meanwhile, operating costs were cited by 12 per cent of respondents as a factor likely to influence performance significantly over the coming year, a three percentage-point increase on last time, and equal to the highest figure recorded for operating costs since the survey was launched in May 2008.

Fuel costs were in fact the most significant performance-influencing factors for charterers, up to 26 per cent from 23 per cent in February 2012, pushing demand trends (down from 24 per cent to 21 per cent) into second place. Competition—down significantly from 23 per cent to 16 per cent—was in third place.

Demand trends remained the number one performance-affecting factor for owners, unchanged at 21 per cent. Finance costs (unchanged at 18 per cent) were in second place, followed by competition, down one percentage point to 16 per cent. For managers, meanwhile, competition and demand trends (both down one percentage point this time to 18 per cent) occupied the top two places, with f