Wednesday, July 11, 2012

SHIPPING CONFIDENCE SURVEY: Shipping Limping Back to Normalcy


Published in Sagar Sandesh Maritime Weekly
The overall confidence levels in the shipping industry increased in the three months ended May 2012, to reach their highest level since February 2011, the latest Shipping Confidence Survey from shipping accountant Moore Stephens has revealed.
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 twelve months, the survey further revealed.
Confidence levels:
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 among different stakeholders in the shipping sector including ship owners and brokers across the globe.
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.
Demand trends, competition and finance costs have consistently featured as the top three factors cited by respondents overall as those likely to influence performance most significantly over the coming 12 months. That was the situation again this time, although the numbers in each category were down, in the case of demand trends from 22 percent to 21 percent, competition (down from 20 percent to 18 percent) and finance costs (down one percentage point to 16 percent).
There was a two percentage point increase (from 49 percent to 51 percent) in the number of respondents overall who expected finance costs to increase over the next 12 months.
Freight markets:
The survey revealed an increased level of expectation of higher rates in the tanker sector than was the case three months previously. Overall, 40 percent of respondents thought that rates would increase, as opposed to 35 percent last time.
It was a similar story in the container ship market, where 34 percent of respondents overall expected rates to go up, compared to 31 percent in the previous survey.
It was a different story in the dry bulk sector, however, where most of the indicators were down, in contrast to the previous survey, which saw a surge of optimism on the part of all respondents that rates would increase. Overall, 35 percent of respondents this time expected dry bulk rates to go up over the coming year, as against 38 percent in February 2012.
Average Confidence Levels:
In May 2012, the average confidence level expressed by respondents was 5.7, 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 biggest increase in confidence was recorded by ship managers, up from 5.2 to 6.0 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 5.0 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.
According to one respondent, “Ninety per cent of world trade is transported by sea, so shipowners can find employment for their vessels, one way or another. Although we are at the bottom of the cycle, and freight rates are not encouraging, good operators have every chance of surviving. We expect to see a correction in the imbalance between supply and demand by the end of 2013.”
Investment and development:
The overall number of respondents expecting to make a major investment or significant development rose 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.
 45 percent of charterers, and 40 percent of both owners and managers, assessed the likelihood of their making an investment at 7.0 out of 10.0 or higher.
Geographical expectation:
Geographically, expectation levels of major investments were up in all areas covered by the survey, with the exception of North America (down from 5.0 to 4.5).
The biggest increase was in Europe (up from 4.8 to 5.3), while in Asia the figure went from 5.0 to 5.2. Latin America also saw an increase, from 5.2 to 5.7.
Demand trends, competition and finance costs have consistently featured as the top three factors cited by respondents overall as those likely to influence performance most significantly over the coming 12 months.
DEMAND TRENDS
Demand trends remained the number one performance-affecting factor for owners, unchanged at 21 percent. Finance costs (unchanged at 18 percent) were in second place, followed by competition, down one percentage point to 16%. For managers, meanwhile, competition and demand trends (both down one percentage point this time to 18 percent) occupied the top two places, with finance costs up one percentage point to 17 percent in third place.
Geographically, demand trends remained the most significant factor for respondents in Asia (up from 22 percent to 24 percent) and in Europe (down from 22 percent to 21 percent). In Asia, fuel costs (16 percent) supplanted finance costs in third place, behind competition (down from 21 percent to 18 percent) in second position. Fuel costs were also a significant factor in North America, where they were cited by 18 percent of respondents. In Europe, finance costs featured in second place, ahead of competition, unchanged at 18 percent.
Tanker rates:
There was generally good news about the prospects for higher tanker and container ship rates over the coming year, even though one respondent – without specifying any particular sector – complained, “Brokers are not fighting for the best rates. They need to fix so many vessels per day that they no longer care about the levels at which they fix, and owners are suffering.”
The survey revealed an increased level of expectation of higher rates in the tanker sector than was the case three months previously. Overall, 40 percent of respondents thought that rates would increase, as opposed to 35 percent last time.
There was a two percentage point increase (from 49% to 51%) in the number of respondents overall who expected finance costs to increase over the next twelve months. The number of respondents who thought that finance costs would decrease over the coming year remained unchanged, meanwhile, at 8%.
Conclusion:
Terming the shipping industry as most resilient, the survey revealed that despite the financial woes in Europe, notwithstanding the slump in the freight markets, and irrespective of tonnage overcapacity, it recorded an increase in confidence in the shipping sector for the fourth consecutive quarter.
Indeed, 40 percent of owners rate their prospects of making a new investment over the next 12 months at 7 out of 10, or higher – this despite the fact that the cost of finance is expected to go up over the same period.

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