Overtonnaging, the effect of lower oil prices and the growth of investment by financiers from outside shipping have led to overall confidence levels in the shipping industry falling to their lowest level in two-and-a-half years, the latest Shipping Confidence Survey from accountant and shipping adviser Moore Stephens reveals.
In February 2015, the average confidence level expressed by respondents in the markets in which they operate was 5.5 on a scale of 1 (low) to 10 (high), down from the 5.7 recorded in November 2014. Geographically, confidence was down in all main areas covered in the survey.
A surplus of tonnage, particularly in the dry bulk trades, dominated the comments of those who responded to the survey.
One said: ”Dramatic over-ordering in the dry cargo market in the last two years has led to the catastrophically bad market we have today. What is now even more frustrating is that those clever guys who thought that dry cargo newbuildings were a good idea are now starting to convert them to tankers. Excellent! Let’s hit another sector that has just found its feet with more unnecessary orders! When will people learn?”
Demand trends, competition and tonnage supply featured as the top three factors cited by respondents as those likely to influence performance most significantly over the coming twelve months.
Turning to the freight markets, there was a fall in the number of respondents anticipating improved rates in the tanker sector over the next twelve months, but increased expectation of higher rates in the dry bulk and container ship trades.
Respondents also remarked that containerisation was moving into some trades previously dominated by break-bulk ships.
”Overtonnaging is not so much the elephant in the room as the room itself. It is a major factor in the collapse of freight rates,” Richard Greiner, Moore Stephens Partner, Shipping Industry Group, said.
”Elsewhere, everything from continuing problems in the world economy to the imposition of sanctions (most recently those involving Russia) has helped neither the confidence nor the performance of the markets. Even the fall in oil prices, which at first blush might have seemed to be good news for an industry with such a high fuel bill, has its down side too.”
Greiner also said that ”the day when shipping fails to attract new money from both internal and external investors is the time to really start worrying,” pointing out that over the past twelve months a number of banks rediscovered their appetite for shipping to a certain extent. The industry has also started attracting private equity investors, which, according to Greiner, are becoming ”increasingly significant players.”
”The current ship finance market is much-changed from the traditional model which many of today’s established players grew up with. But different doesn’t have to be bad and, however volatile the market, new investment is essential to both survival and growth,” said Greiner.
”None of this will be news to those experienced industry players who, to varying degrees, have seen tough markets before and who will find the wherewithal and the patience to ride out the current difficulties. It is less certain whether others will be able, or willing, to hold their nerve so well.”