By Moore Stephens
Overall confidence levels in the shipping industry have shown a marginal drop over the past three months, according to our latest Shipping Confidence survey conducted in August 2010.
At the same time, however, the number of respondents expecting to make a major investment or significant development over the next twelve months was up to a record high, while the percentage of those expecting finance costs to rise over the same period hit its lowest figure since the survey was launched in May 2008.
In August 2010, the average confidence level expressed by respondents in the markets in which they operate was 6.2 on a scale of 1 to 10, compared to 6.3 in the previous survey, which itself represented the highest level achieved for eighteen months.
Expectations of making a major investment or significant development over the next twelve months were up overall, on a scale of 1 to 10, from 5.6 to 6.0, the highest level since May 2008.
A response consistent with that which has emerged throughout the life of the survey was once again evident in terms of the factors which are likely to affect performance over the next twelve months, with demand trends (cited by 23% of respondents overall), competition (19%) and finance costs (17%) again featuring as the three most significant items, and not varying overall by more than one percentage point by comparison with the previous survey.
There was a 9 percentage-point fall compared to the last survey in the numbers of respondents who expected finance costs to rise over the next twelve months, down from 51% in May 2010 to 42% this time. This is an all-time low for the survey and a full 24 percentage-point drop on the figure for May 2008. The movement in opinion was most marked amongst owners (down from 50% to 37%), while for managers the fall was from 53% to 45%.
So far as the markets are concerned, the number of respondents who expected rates in the container ship market to increase over the next twelve months reached a survey all-time high of 50% – up from 47% last time and a full 20 percentage points higher than the figure in May 2008.
In the tanker sector, the number of respondents overall anticipating higher rates fell by 2 percentage points to 48%. There are indications here that expectations are being moderated in line with reality. In May 2008, 31% of owners thought that tanker rates would go up over the next year, while 64% of charterers were of like mind. That was a gap of 33 percentage points. Today, the same gap is down to a mere five points.
Finally, in the dry bulk sector, the 42% of respondents who expected rates to increase was identical to the figure recorded in the previous survey.
We should not be too surprised, or indeed disheartened, at the very slight drop in confidence returned by our latest survey. Eighteen months ago, shipping confidence was at an all-time low, and the mood now is considerably brighter, despite continuing political and economic uncertainty. It is understandable that people may be a little wary until they can see how the world economy is developing over a longer period of time.
The fact that more of the companies responding to our survey than ever before now expect to make some form of new investment over the next twelve months is extremely good news. Without new investment, industry will die, or at best stand still. And there are other reasons to be optimistic. The banks have been urged, in shipping as elsewhere, to start lending money again, and although the responses to our survey suggest that this is not happening quickly or often enough, there is nevertheless evidence to suggest that money is starting to circulate once more. It is also encouraging to hear that greater numbers of respondents are expecting the cost of finance to come down over the next twelve months.
Generally speaking, there is a much higher level of confidence that freight rates in the main trades will continue to improve over the coming year. Furthermore, the recent continual rises in operating costs have now been arrested, according to Moore Stephens' soon-to-be-published annual OpCost report, an acknowledged industry standard benchmarking tool for vessel running costs.
If you have an industry where confidence is holding up despite general economic uncertainty, where there is increased expectation of lower finance costs, where opportunities for new investment are being actively explored, and where continued rises in operating costs are being addressed, the prospects for greater long-term viability must be good.
Richard Greiner – Partner, Shipping Industry Group
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