Shipping Confidence Hits Two-And-A-Half Year Low

Overall confidence ranges within the delivery trade fell throughout the three months to February 2015 to their lowest degree for two-and-a-half years, in keeping with the newest Shipping Confidence Survey from worldwide accountant and delivery adviser Moore Stephens. Respondents to the survey recognized overtonnaging as the most important issue behind the autumn in confidence, but additionally expressed concern concerning the impact on the trade of decrease oil costs and the expansion of funding by financiers from outdoors delivery.

In February 2015, the common confidence degree expressed by respondents within the markets by which they function was 5.5 on a scale of 1 (low) to 10 (excessive), down from the 5.7 recorded in November 2014. This is the bottom determine since August 2012, and compares to the file excessive of 6.8 when the survey was launched in May 2008.

Charterers recorded the most important fall in confidence, down to three.9 from 5.4 within the earlier survey. Confidence on the a part of house owners was additionally down (from 5.5 to five.4), whereas that expressed by managers was barely up, from 6.1 to six.2. Confidence within the broking sector was unchanged at 5.0. Geographically, confidence was down in all important areas lined the survey.

A surplus of tonnage, notably within the dry bulk trades, dominated the feedback of those that responded to the survey. One mentioned, “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?”

Falling oil costs have been one other recurring theme amongst respondents, one among whom warned, “The trickle-down effect of cutbacks in the oil sector will result in a decrease in business across the board for companies in the shipping industry.”

A variety of respondents expressed concern concerning the impact on the markets of the entry into the trade of recent cash from non-shipping traders. One complained, “Excessive liquidity from US markets being invested in Far East shipbuilding programmes is killing any improvement in the market.” Another, nevertheless, emphasised, “The markets have a way of correcting themselves, and the probable withdrawal of short-term investors should ease the tonnage imbalance.”

The survey revealed that the chance of respondents making a significant funding or vital improvement over the subsequent twelve months was down on the earlier survey, on a scale of 1 to 10, from 5.3 to five.1, the bottom determine since February 2012, though managers have been extra assured on this regard than they have been three months beforehand. One respondent mentioned, “Short-term investors are likely to exit the market at a loss when they find there is no quick and easy money to be made.”

The variety of respondents who anticipated finance prices to extend over the subsequent twelve months was down by eight share factors to 32 %, the bottom determine within the seven-year lifetime of the survey. One respondent mentioned, “Access to non-conventional ship finance has made it much too easy for vessel owners to order new tonnage far in excess of prospective demand growth.”

Demand traits, competitors and tonnage provide featured as the highest three elements cited by respondents as these more likely to affect efficiency most importantly over the approaching twelve months. The numbers for demand traits have been down on final time from 25 % to 24 %, whereas these for competitors have been up one share level to 21 %. Tonnage provide, up by one share level to 14 %, displaced finance prices in third place this time. Fourth place was shared by finance prices (down by 2 share factors to 12 %) and working prices, up by 2 share factors. Meanwhile, gas prices have been unchanged at 7 %, unsurprisingly the bottom determine recorded on this class since November 2010. One respondent mentioned, “The expected advantages to be derived from eco-designs have been eroded by the collapse in the price of bunkers, leaving expensive assets chasing demand that is growing only slowly.”

Turning to the freight markets, there was a fall within the variety of respondents anticipating improved charges within the tanker sector over the subsequent twelve months, however elevated expectation of upper charges within the dry bulk and container ship trades. Overall internet sentiment, based mostly on the distinction between the variety of respondents who anticipated charges to enhance and the quantity who thought they’d deteriorate, was constructive in all three important tonnage classes lined by the survey.

One respondent mentioned, “Strong demand driven by the fall in oil prices has strengthened the current crude oil shipping market,” whereas one other famous, “The dry bulk sector is still suffering from overtonnaging in all ship sizes.” Respondents additionally remarked that containerisation was shifting into some trades beforehand dominated by break-bulk ships.

Richard Greiner, Moore Stephens Partner, Shipping Industry Group, says, “Shipping is doing its greatest to dwell as much as its status as a extremely cyclical trade. Confidence has fallen to its lowest degree for two-and-a-half years, having been at its highest for six years in first-quarter 2014. A 12 months is a very long time in delivery.

“The present state of the Baltic Dry Index (BDI) tells its personal story. Having nudged in the direction of 12,000 in mid-2008, it lately hit a thirty-year low of 509. Lower commodity costs, decreased demand and an oversupply of ships are among the many causes cited for this collapse on the earth’s dry bulk freight charges.

“Overtonnaging is just not a lot the elephant within the room because the room itself. It is a significant component within the collapse of freight charges. Elsewhere, every part from persevering with issues on the earth economic system to the imposition of sanctions (most lately these involving Russia) has helped neither the arrogance nor the efficiency of the markets. Even the autumn in oil costs, which at first blush may need appeared to be excellent news for an trade with such a excessive gas invoice, has its down aspect too.

“A variety of respondents to the survey noticed a hyperlink between what they considered quick access to non-traditional ship finance and a failure to enhance the extent of overtonnaging. There is a sure logic to this argument, however the day when delivery fails to draw new cash from each inside and exterior traders is the time to actually begin worrying. Over the previous twelve months and extra we’ve seen the banks begin to rediscover their urge for food for delivery to a point, whereas personal fairness traders have grow to be more and more vital gamers. The present ship finance market is much-changed from the standard mannequin which lots of at present’s established gamers grew up with. But completely different doesn’t must be dangerous and, nevertheless risky the market, new funding is crucial to each survival and progress.

“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.”

Source: Moore Stephens LLP