Overall confidence levels in the shipping industry have stabilised, according to the latest Shipping Confidence survey by leading shipping account and adviser Moore Stephens, although a sustainable recovery in the markets still appears to be some way off. And the depression in freight rates seems likely to persist amid continued concerns about the level of newbuildings set to enter the market over the next two years.
On a scale of 1 to 10, the average confidence level expressed by respondents in November 2009 in the markets in which they operate was 5.7, the same as in the previous survey in August 2009, which itself was the highest level recorded for twelve months. But this is still significantly down on the 6.8 recorded in the first Moore Stephens survey, in May 2008.
Charterers showed the most significant drop in confidence over the latest three-month period, down from 5.8 to 5.6, while confidence among brokers increased slightly, from 5.6 to 5.7. Confidence among owners remained unchanged at 5.7, while managers dropped from 5.9 to 5.8. Geographically speaking, the most significant changes were evident in North America (down from 5.8 to 5.2) and Asia (5.9 to 5.7). Confidence in Europe continued its recent upward trend, from 5.4 to 5.6.
Once again, the survey revealed a continuing level of concern over the newbuilding orderbook. "There are too many ships already in operation, and even more to come, so there will be very little scope to increase freight rates," said one respondent, echoing the thoughts of a number of others who responded to the survey. Other comments included, "There is only enough cash to fund half the orderbook, so something has to give", and, "The massive orderbook is a great cause for concern". One respondent said that the key to the massive orderbook crisis was for "the banks not to finance any more projects and for shipyards to agree to delays in delivery dates".
For the fourth successive survey, respondents identified demand trends as the most important factor likely to affect their business performance over the coming year, followed by competition and the cost and availability of finance.
Respondents' expectations of making a major investment or significant development over the next twelve months remained unchanged at 5.1 overall out of a possible maximum of 10.0. Owners were the most confident in this regard, scoring 5.4, although this represented a marginal drop on the figure recorded in the last survey. Confidence was down in Asia, from 5.4 to 5.0, and marginally up in Europe and Latin America.
Owners, charterers, managers and brokers all expected finance costs to rise over the next twelve months, the overall percentage for all respondents in this regard rising 3 percentage points from 45 to 48%, having fallen one percentage point at the time of the previous survey. The biggest percentage rise was recorded by ship managers, from 46% to 51%.
A geographical divide was also evident, with Asia and Europe anticipating increases (11 percentage points more on the part of Asia) and the Americas expecting costs to fall, in the case of Latin America by no less than 14 percentage points.
So far as the freight markets are concerned, there was a general consensus among respondents that there was very little scope for increasing rates at the moment. Indeed, there was a fall in expectation overall in each of the three tonnage categories covered by the survey that rates would increase over the coming twelve months.
In the tanker market, the number of respondents overall who expected rates to go up fell from 45% to 42% this time, with the most significant shift in opinion being expressed by charterers, where there was a 13 percentage point drop (to 22%) in the number of respondents who thought rates would go up. For owners, expectation levels of an increase were down from 46 to 39% on last time.
In the dry bulk market, meanwhile, the overall expectation of higher rates was down from 41% to 38%, with ship managers alone in increasing, from 41 to 49%, their level of expectation of increases.
Finally, in the container ship sector, 26% of respondents overall, compared to 35% last time, expected rates to rise over the coming twelve months.
Moore Stephens shipping partner, Richard Greiner says, "It is gratifying to see that shipping confidence has been sustained at existing levels over the past three months, having progressively increased over the course of the year. However, confidence is somewhat fragile at present. This is not surprising given the number of newbuildings set to enter the market over the next two years to compete for a volume of trade which, given the state of the world economy, does not seem likely to be able to sustain a significantly larger world fleet. Scrapping and redeployment will take care of some of the over-supply, but we will doubtless see less welcome forms of contraction, and more newbuilding cancellations and delays. As always, well-developed and sustainable business plans will continue to be prerequisites for those seeking finance from the banks.
"It is significant that the survey revealed that respondents in Asia anticipated a downturn in new investment over the coming twelve months, and that Asia also led the way in terms of expecting a big increase in finance costs. Given what has already been invested in the region, in shipyards and elsewhere, this is hardly a surprise. It was notable, too, that operating costs featured more prominently in respondents' answers this time as a significant factor likely to influence performance over the coming year, given the findings of the recent Moore Stephens future operating costs survey."