(EnergyAsia, September 29 2011, Thursday) — The shipping industry’s confidence levels fell to their lowest level for three and a half years in the three months ended August 2011, according to the latest shipping confidence survey by leading accountant and shipping adviser Moore Stephens.
Fears of a supply glut, continuing uncertainty over the global economy and the rising cost of marine fuels were cited as the main reasons for the decline in confidence.
In August 2011, the average confidence level expressed by respondents in the markets in which they operate was 5.3 on a scale of 1 (low) to 10 (high), compared to 5.6 in the previous survey in May 2011.
This is the lowest figure recorded since the survey was launched in May 2008 with a confidence rating of 6.8, which remains the highest rating achieved thus far, said Moore Stephens.
Confidence over the three-month period covered by the latest survey fell most noticeably on the part of owners, down from 5.8 to 5.1, the lowest owner rating recorded during the life of the survey to date.
Confidence levels among charterers were even lower at 5.0, but the fall in comparison with the previous survey (from 5.4) was less than that for owners. The survey found that confidence among managers fell from 5.8 to 5.6, while brokers held on to their already comparatively low rating of 5.1.
Geographically, confidence remained lowest in Europe, falling from 5.5 to 5.0, its lowest level since the survey was launched. Asia, meanwhile, held steady at 5.7, said Moore Stephens.
According to the survey, one respondent said:
“Until recently, things looked quite optimistic, but recent doubts over US loan credibility and EU financial worries have severely dented confidence.”
Another told Moore Stephen that “the most unpredictable period since the beginning of the global financial crisis” and suggested that the market was “back to levels last seen in 2001.”
Few could see a short-term solution to the difficulties.
Overtonnaging or supply glut was a recurrent theme found among those surveyed.
One respondent said: ““Markets are at rock-bottom, and will stay there for some time because of the large number of new vessels due to come into service. Older vessels and speculative investors, as well as low-grade operators, will have to disappear before the situation can start to improve.”
Another noted that “the situation looks pretty grim, given the massive amount of over-ordering.”
Expectations on the part of respondents of making a major investment or significant development over the next 12 months fell, on a scale of 1 to 10, from 5.6 to 5.1 – the lowest level since the same figure was recorded in November 2009.
In August 2010, Moore Stephens found that respondents recorded the highest figure (6.0) in the life of the survey to date. This time, owners recorded the biggest drop in this regard, while managers and charterers were also less confident. Geographically, expectations of making a major investment were down across all the main regions covered by the survey.
Having dropped out of the top three for the first time in the last survey, finance costs returned as one of the top three factors which respondents expected to influence performance most significantly over the coming twelve months. Demand trends and competition, meanwhile, maintained their ever-present record in the top three.
Twenty-two per cent of respondents (down from 23% last time) cited demand trends as the most significant performance-affecting factor, while 17% (19%) identified competition.
Another 16% of respondents, (vs 14%) opted for finance costs. The percentage of respondents overall who identified fuel costs as having a significant effect on performance fell by four percentage points to 12%.
For owners, demand trends continued to be the dominating factor, despite a fall from 28% to 24% in the number of owners who put it in first place overall, ahead of finance costs and tonnage supply.
The top three performance-influencing factors for managers were competition and demand trends – both cited by 17% of respondents in that category and both up by two percentage points on last time – followed by operating costs. For charterers, meanwhile, demand trends and competition made up the top three, ahead of fuel costs.
Geographically, demand trends emerged as the most significant factor for operators in Asia, Europe and North America (19%, 23% and 30%, respectively), with competition and finance costs making up the remainder of the top three.
Fewer respondents expected an increase in finance costs over the coming year – 52% compared to 59% in the previous survey. This was the case across all categories of respondent and in all geographical areas covered by the survey.
Meanwhile, the number of charterers who were anticipating finance costs to fall over the next year was up from 9% to 15%, the highest figure since May 2009. Geographically, the biggest change was to be found in Asia, where the 50% of respondents anticipating higher finance cost was twelve percentage points down on the 62% recorded in May 2011.
Moore Stephens shipping partner Richard Greiner said:
“The drop in shipping confidence to a record low is a disappointment. But it has been coming. Given what has been happening in the world, and in the industry, confidence remained surprisingly high last year, but it has started to slip in 2011. Indeed, in many ways, it is back to the levels of two years ago.
“We are starting to see now what many had predicted would happen much earlier. Banks are calling in their loans, shipping companies are filing for bankruptcy protection, ships are being arrested and auctioned around the world, and the courts and arbitration tribunals are starting to see an increase in their workloads.
“Financiers wants their money, and are ready to take what they can get now rather than wait in the hope that the markets will recover and enable them to achieve a return on their investment. This results in a situation in which everybody loses something.
“Financiers need to continue to work together with shipping companies and external financial advisers to find a way forward for viable long-term businesses, perhaps exploring the opportunities offered by independent business reviews.
“Meanwhile, costs are going up all the time. Bunker prices are the big worry. The cost of fuel has to be met and passed down the chain, at a time when money is tight for everybody. After a lull, the indications are that operating costs are once again likely to increase. The cost of raw materials also continues to rise.
“At the same time, freight rates are tumbling through the floor, stock markets are falling around the world, the US and European economies continue to stutter unsatisfactorily, political unrest in the Middle East shows no sign of abating, and the general economic gloom deepens.