Confidence in Shipping Industry at a six year high

The Moore Stephens Shipping Confidence Survey report is certainly encouraging; the results showed that confidence in the industry rose to the highest level in six years. There was more good news for freight; rates are set to improve or at the very least maintain their existing levels over the year, and an increase in private equity funding is very likely to have a significant impact.

On a scale of one to 10, respondents to the survey reported that their confidence in the markets in which they operate averaged 6.5 in February 2014, the highest score since 2008 when the survey was first launched.

Probably due to this increased confidence, respondents also reported that they were just as likely to make a major investment in their business or a significant development over the next year as in the previous year. Other issues that had an impact included tonnage supply, operating and supplanted fuel costs –no surprises there!

There was more good news from the freight sector with a higher level of optimism about rate increases reported in the dry bulk and container ship sectors.  In the dry bulk sector there was a two per cent increase in the overall numbers of those anticipating rate increases - the highest figure recorded since the survey was started.

34 per cent of respondents from the container ship market think that rates will increase over the next year, more than last year.

The conclusions of the survey are mostly encouraging for shipping companies.  Although it might be a little too early to talk about the downward cycle of recent years being over, it does look as though things are beginning to improve, and the next 12 to 18 months are looking optimistic.

The future of the freight markets is looking brighter than it has done for some years, partly due to worries about over-tonnaging being allayed by increased scrapping and a practical approach to expanding businesses.

In the world of shipping finance, there has been and continues to be a significant level of interest and investment from the private equity sector, which replaces the more traditional bank finance which has been harder to source in recent years. Although some respondents were pleased about this, others did feel that it could depress rates in the long run, potentially delaying recovery, or in some cases enabling people to put expansion plans into place without thinking them through.

One respondent said, “The over-supply of tonnage, together with private equity investment, will continue to depress rates and delay recovery.” Another noted, “The flood of private equity funding, which must be spent before it reaches its sell-by date, persuades previously sensible operators to ignore basic economic principles. It’s happened before.”

The cost of impending regulation didn’t seem to impact on the respondents too much – maybe because the cost of complying with legislation like the Ballast Water Management (BWM) Convention and the proposed new regulations governing emissions control aren’t yet quantifiable.

One leading ship owner has recently estimated that the industry as a whole will have to find US$80 billion to achieve BWM compliance – so it will be interesting to see whether respondents are feeling so positive in the next survey.

Exciting times ahead for the shipping industry

The shipping market is as always erratic and uncertain* and in the changing times of power generation the UK coastal ports are needing to think. On the East coast especially, the offshore wind turbine market is emerging and as the necessity to find suitable port facilities to handle the capacity of large vessels and land which this industry requires there is even more thinking going on. Cockenzie (the old coal fired power station) is being looked at as a new facility as an alternative to established ports which lack sufficient capacity to cope with the new vessels which are employed in the manufacture and shipping for the offshore wind farms.

New facilities are being sought and the Humber is an example of where new ports can and are being developed – Cockenzie has the promise of a nascent port for the new industry as well as present oil and gas business and the future of offshore rig and platform decommissioning. It can be developed to ‘go out’ into deeper water to gain the capacity that these emerging trades require. The land where the power station and coal storage area used to be can take some of the manufacturing space to build some of the blades, tower, nacelles, castings and gearboxes that are land hungry. Other options at other potential ports and sites are being considered.

Many thousands of turbines will be built and many hundreds of offshore platforms will be decommissioned over the next 5 to 20 years and the size of the component parts simply mean that ‘nothing’ can move by road. Some of these parts can be manufactured and handled in existing ports but the assembly of the structures need very large facilities to cope. One can look across the Forth from Edinburgh to Methil and see the size of the Samsung turbine, this is in shallow water and they will get larger as the industry develops, we are going deeper and bigger – it is the new oil and gas industry starting all over again. The picture is quite similar, offshore structures producing oil and gas with a pipeline running to the shore as opposed to wind turbines producing electricity with a cable running to the shore.

These are fascinating and exciting times for shipping companies. The evolution of alternative energy is upon us and will change what we know, just as the shale gas industry is turning the US energy market upside down with compounding affects of that knowledge across the globe. The cost of all this generation of power is always part of the discussion, but all energy supply is fiscally adjusted as we are becoming to learn so clearly. Put that into the context of Shale, Nuclear and Wind (and other energy sources) and it gets your spreadsheets combusting.

As a US economist said when asked – ‘How big is shale gas?’ he replied ’About as big as the world wide web.’ Oh if I was only 30 years younger – what fabulous opportunities and what fun!

There is something that is certain* in the shipping industry and that is change. My company, t. ward shipping ltd  have always relished it and being quick on our toes we are reacting.