Overall confidence levels in the shipping industry recovered to their highest level for two years in the three months ended February 2013. There was improved expectation of freight rate increases over the next twelve months, particularly in the dry bulk sector, and greater likelihood of new investment in the industry.
Confidence levels
In February 2013, the average confidence level expressed by respondents in the markets in which they operate was 5.8 on a scale of 1 (low) to 10 (high), compared to the figure of 5.6 recorded in the previous survey in November 2012. The survey was launched in May 2008 with a confidence rating of 6.8.
The likelihood of respondents making a major investment or significant development over the next twelve months was up on the previous survey, on a scale of 1 to 10, from 5.4 to 5.5 – the highest level since May 2011.
Demand trends, competition and finance costs once again featured as the top three factors cited by respondents overall as those likely to influence performance most significantly over the coming twelve months. The numbers were static for demand trends at 23%, up for competition (from 18% to 20%), and unchanged in the case of finance costs at 16%.
Finance costs
There was a 2 percentage-point fall (from 42% to 40%) in the number of respondents overall who expected finance costs to increase over the next twelve months.
Freight markets
The numbers of respondents overall who expressed an increased expectation of higher freight rates over the next twelve months was up in the three main categories of tonnage covered by the survey.
In the tanker sector, the numbers expecting higher rates rose by 4 percentage points to 35%. In the dry bulk sector, there was a 19 percentage-point rise, to 50%, the highest figure in the life of the survey, in the overall numbers of those anticipating rate increases. In the container ship market, there was a 7 percentagepoint increase, to 34%, in the overall numbers expecting rates to go up.
Conclusions
Another small increase in confidence is very good news. Indeed, two successive quarters of improved confidence is in many ways more encouraging than one sizeable swing. It suggests that confidence is slowly building, indicating the start of a credible recovery.
It is still early days, but the tone of the comments from respondents this time indicates something of a sea change. Whereas previous surveys have been dominated by concerns over specific issues such as tonnage overcapacity and the economic woes in Europe and elsewhere, this time there were no similar overarching areas of concern identified by respondents. Indeed, the responses in many cases focused on planning for the future – for example by investing in new, fuel efficient tonnage, exploiting new opportunities created by companies exiting the market, and exploring the possibilities for LNG as a clean fuel – rather than on compensating for past events.
Improved confidence was reflected in another increase in the expectation levels involving potential new investments. Now is certainly a good time to invest, particularly for those who can identify a niche opportunity in a specific area, one for which there is growing demand and which is backed by a proper business plan. The indications are that the worst of the current shipping cycle could be over.
But serious challenges lie ahead. Operating costs are going up, particularly fuel and manpower, and there is the added burden of increasing operational and environmental regulation. The cost of complying with the BWM convention has still not been accurately quantified, but it will not be insignificant. Indeed, one respondent likened it to a “ticking bomb which can go off at any moment, demanding enormous investment from already cash-strapped owners, and the banks will probably not be standing in line to support them.”
Although freight rates still have a long way to go before they reach the levels seen at the height of the boom, the responses to the survey did reveal greater overall confidence in rate increases over the coming year in all three main tonnage categories. This was most evident in the dry bulk sector, where expectations of better rates were higher than at any time since the survey was launched in 2008. Although there is still a lot of new dry bulk tonnage coming into the market, scrapping levels in this sector have raced ahead, with well over 500 bulk carriers reported to have been consigned to demolition yards in 2012.
Scrapping levels in all over-tonnaged sectors will need to be maintained, and improved upon, over the next twelve months, if shipping is to have a chance of returning to profitability. It is likely to be a slightly different industry which emerges from this prolonged downturn, one in which the banks will exert greater control for some time to come. Vessel values are likely to remain under pressure this year, and there is a lot of financial restructuring yet to be done. But shipping will retain its entrepreneurial flair, which is in no way undermined by operating from a stronger financial base.
During the development of the report key players in the international shipping market have been contacted, in February 2013, asking them to complete a short web-based questionnaire so that they could share their views. The report was based on 435 responses.
The report has been developed by Moore Stephens LLP and Richard Greiner, Moore Stephens shipping partner. The report was initially published during March 2013.
Above abstract from the report is reproduced here with the author’s kind permission.
Source: Moore Stephens
Officer of the Watch 
very informative & encouraging for the shipping Industry as a whole!!