Moore Stephens analysis
Overall confidence levels in the shipping industry rose to their highest level for two and a half years in the three months ended May 2013, according to our shipping confidence survey. The survey produced evidence of increased enthusiasm for new investment, although doubts persisted about the availability of bank finance. Fuelled by ongoing concern about a surfeit of tonnage on the market, freight rates in the dry bulk sector in particular were expected to come under more pressure over the next twelve months, although the outlook for the tanker markets looked more encouraging.
In May 2013, the average confidence level expressed by respondents in the markets in which they operate was 5.9 on a scale of 1 (low) to 10 (high), compared to the figure of 5.8 recorded in the previous survey in February 2013. This is the highest figure since the 6.0 recorded in November 2010. The survey was launched in May 2008 with a confidence rating of 6.8. The confidence rating for owners was unchanged at 5.7, while that for brokers was up from 5.6 to 5.9, the highest figure since November 2010. Confidence on the part of managers and charterers, however, was down to 6.0 and 5.5 respectively, from 6.2 and 6.0 in February 2013. Geographically, confidence in Asia was up (from 5.6 to 5.8), unchanged in Europe at 5.8, and down in North America from 6.1 to 6.0
A number of respondents felt that there were positive signs that a recovery was under way. One said, “The shipping market is dynamic in nature, and we are starting to see signs of exponential growth,” while another predicted with great confidence, “The shipping markets will continue growing over the next fifteen years!” Elsewhere the predictions were less expansive, ranging from, “The market will recover in 2014,” to, “Overall, we believe that 2013 will end up better than last year, and 2014 will show further improvement, even if some niche markets may not be able to maintain their current rate of growth.” Other respondents, meanwhile, continued to express concern about a surfeit of tonnage in the market. One said, “As soon as there is any hint of a sector with positive potential, owners run to the yards and start ordering” while another noted, “New orders need to be halted for two years in order to correct the over-supply situation.”
Elsewhere it was noted, “There are still too many owners ordering new vessels which will hit the water in the next two years. If we are to believe estimates that the world’s shipyards turned out five times as much tonnage in 2012 as they did in 2005, it is clear that the problems are far from being solved.” Another respondent commented, “Newbuildings from China continue to be delivered, and that will doubtless continue because the yards are major employers of local labour and huge consumers of indigenous steel and other raw materials.” And it was not just China which was referenced in this context, with one respondent pointing out, “There are competitive prices on offer for newbuilding orders, even from Japanese shipyards.” Another respondent predicted a continuing over-supply of tonnage in all sectors except those below 20,000 dwt, adding, “Too many larger ships continue to be ordered and delivered due to perceived low newbuilding costs, but these deals do not come close to making sense based on current market returns.”
Despite significant increases in scrapping levels in the past eighteen months, a number of respondents felt that much more still needed to be done. “The level of new ordering is alarming,” said one, “particularly as some reports suggest that rates of scrapping may now be slowing down again. At current levels the fleet will continue expanding into 2014 and 2015.” Another respondent said, “The industry faces significant increased costs in terms of meeting new regulations over the next few years and, given the lack of available finance, this may accelerate the scrapping of older vessels, particularly those coming up for their fourth survey, but this is unlikely to be sufficient to get the industry out of the over-supply hole it finds itself in.”
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Source: Moore Stephens
