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Shipping confidence up on expectation of rate increases

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Overall confidence levels in the shipping industry increased slightly in the three months ended February 2012, to reach their highest level since May 2011, according to the latest shipping confidence survey by leading accountant and shipping adviser Moore Stephens.

This is the third successive quarter in which there has been a small uptick in confidence. Respondents expected freight rates to increase over the coming year in the three main tonnage sectors covered by the survey. But the number of respondents expecting to make a major new investment over the next twelve months fell to its lowest figure for three years, despite a fall in the number of those anticipating an increase in finance costs. In February 2012, the average confidence level expressed by respondents in the markets in which they operate was 5.5 on a scale of 1 (low) to 10 (high). This is marginally up on the figure of 5.4 recorded in the previous survey in November 2011. Confidence was up among owners (rising from 5.3 last time to 5.6), charterers (4.9 to 5.0) and brokers (5.2 to 5.6). Confidence was also up in Europe, from 5.1 to 5.3 but was down in Asia, from 5.8 to 5.7. The overall number of respondents expecting to make a major investment or significant development over the next twelve months fell from 5.2 to 4.9, the lowest figure since the 4.8 recorded in February 2009. All categories of respondent and geographic region were less confident than in the previous survey. Demand trends, competition and finance costs continue to dominate the top three factors cited by respondents as those likely to influence performance most significantly over the coming twelve months. 22% of respondents (down from 24% last time) cited demands trends as the most significant performance-affecting factor, with 20% (up from 17%) identifying competition. Finance costs (unchanged at 17%) featured in third place. There was an 8 percentage point drop (from 57% to 49%) in the number of respondents who expected finance costs to increase over the next twelve months – the lowest figure since November 2010. The survey revealed that respondents are now more confident of rate increases than they were three months previously. In the tanker sector, the number of respondents expecting rates to increase over the coming year was up from 30% to 35%. In the dry bulk sector all the indicators pointed upward. There was a 15 percentage point increase, from the all-time survey low of 23% to a more optimistic 38%, in the overall number of respondents who thought that dry bulk rates would rise over the next twelve months. In the container ship market, 31% of respondents overall expected rates to increase over the next twelve months, as opposed to 23% last time. Moore Stephens shipping partner, Richard Greiner, says, “Nobody could accuse the shipping industry of being faint-hearted. Despite public confirmation that an increasing number of big industry names are in financial difficulty; despite there being too many ships to carry the cargo available to them for the foreseeable future; despite the prohibitive cost of fuel; and despite an ailing world economy, confidence in the shipping industry still increased slightly over the past three months. In fact, confidence today is higher than it was three years ago, in February 2009. “Confidence is contagious, as is the lack of it. Although confidence in the shipping industry is significantly down compared to what it was when we launched our survey in May 2008, it is still holding up better than many had predicted. In part, that is due to a belief in the product and the service on offer. Shipping people know their industry. Although it is possible to carry anything from pins to elephants by other means of transportation, ships remain the only viable option for an overwhelming amount of the cargo that has to be carried on global routes. So, even if the supply-demand equation is currently out of kilter, there is both a need and a demand for shipping, and that is ultimately good for confidence. “Almost without exception, owners, managers, charterers and brokers expect rates to go up over the coming twelve months, albeit starting from a chronically low base point. Improving rates may be too late for some, but could be the saviour of others as they seek to demonstrate to the banks and other investors that there is a genuine prospect of more money coming in. “Shipping is not the only industry which has lost some of its household names. There may be more casualties to come. But higher rates are what is needed, particularly in an industry which, historically, has been accused of under-selling itself. Respondents to our survey this time exhibited a reduced appetite for finding money to spend on new investments over the coming year, but that may change if there is more money to spend – particularly if the cost of borrowing comes down. “Meanwhile, there have been encouraging signs in the past couple of months in connection with efforts to address the worldwide economic downturn. Europe’s plan for bailing out Greece may be more of a short-term palliative than a long-term solution, and there remain serious doubts about other euro economies such as those of Italy, Portugal and Spain. But it is a start, and one that coincides with indications that the beginnings of a recovery may be under way in the US economy. “Shipping has a long way to go before it returns to the rude health which made it such an attractive investment opportunity for so many just a few years ago. Given the way that environmental and safety regulations are driving up the cost of operating in today’s industry, it is unlikely to attract, for the foreseeable future, those looking to make a quick killing before exiting the market. They will not be missed. Shipping prides itself on its competitiveness, but the last thing it needs at the moment is more transient competition. “Sometimes, the circulation of confidence is better than the circulation of money. The shipping industry is managing to maintain the former, but will need more of the latter in order to take the next step towards recovery.”

(source: Moore Stephens, published 26 March 2012)

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