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.