The following is text from a news release from international accountant and shipping adviser Moore Stephens:
(LONDON) — Overall confidence levels in the shipping industry fell during the three months to November 2014 to their lowest level for two years, according to our latest Shipping Confidence Survey. The survey revealed increasing concern about the high cost of achieving compliance with new regulations, and ongoing doubts about overtonnaging. But it was not all bad news, with charterers, managers and brokers all more confident than they were three months previously of making a new investment over the coming year.
In November 2014, the average confidence level expressed by respondents in the markets in which they operate was 5.7 on a scale of 1 (low) to 10 (high), down from the 6.1 recorded in August 2014. This compares to the record high of 6.8 when the survey was launched in May 2008.
All categories of respondent recorded a fall in confidence this time, most notably charterers (down to 5.4 from a record high of 6.7 three months ago) and owners (down from 6.2 to 5.5). Confidence on the part of managers, meanwhile, fell marginally from 6.2 to 6.1, while for brokers it was down from 5.3 to 5.0. Geographically, confidence was down in Asia and Europe to 5.8 and 5.6 respectively from the levels of 6.0 and 6.1 recorded three months previously. Confidence in North America, however, held steady at 6.2.
A number of respondents referred to continuing uncertainty in the markets, resulting from a variety of factors. One said, “The market remains directionless. It needs accelerated scrapping, which would make economic sense for owners of older tonnage. But, given the recent drop in fuel costs, such owners could elect to hold on to their ships for the time being.”
One respondent predicted, “Most sectors will continue to struggle along the bottom, kept alive by low interest rates,” while another felt, “There is still too much capacity and an unreasonable expectation of performance levels, given all the new ordering that is taking place.”
Not everybody was quite so pessimistic, however. One respondent said, “The global markets are expected to pick up around mid-2015,” but warned that the viability of shipping depended on the scrapping of 60 percent of all vessels over 20 years old and on a drastic reduction in the number of new vessels being built.
One respondent predicted, “The shipping market will improve slightly over the next few months as it mirrors the slow improvement in global markets.” But not everybody agreed. “The road to recovery is very long and very hard,” said one respondent. “Europe is still struggling and it seems unlikely that things will improve soon, even if demand for shipping increases in other parts of the world where the economy is faring better.” Another noted, “The world economy is not as healthy as expected. China has changed its growth model, while Europe is struggling under austerity measures and a lack of investment. The U.S. may be in better health, but it is not able to drag shipping out of the doldrums in the short term.”
Elsewhere it was noted, “We are heading for a low level of activity in all markets. With sanctions on Russia and Iran, and fighting in Iraq and Syria and elsewhere, people are spending less money, which results in fewer cargo movements.”
The cost of meeting the growing regulatory burden in the shipping industry was high on the list of concerns expressed by respondents, one of whom noted, “The ballast water treatment legislation hangs like a dark cloud over all technical ship managers. This represents a huge investment accompanied by a high level of risk.” Another observed, “Regulation is becoming stricter, and now accounts for a greater slice of operational expenses than it did a few years ago. This is bad. But it is the only way to push older tonnage out of the market.”
Another respondent emphasized, “There seems to be a lack of willingness to acknowledge the negligible level of pollution caused by shipping in relation to the volume of merchandise which is shipped globally.” Other comments included, “New EU environmental regulations will have a knock-on effect beyond the primary maritime industries,” and, “Freight rates will not compensate completely for the additional cost involved in operating on low-sulfur fuel.”
Responses to the survey were completed before the announcement of the bankruptcy filing of OW Bunker, the industry’s largest fuel supplier. But a number of comments referred to the significant role played by fuel costs in the fortunes of the shipping industry, such as the respondents who noted, “High fuel costs and operating costs kill small shipowners,” and, “Bunker rates will fall still further.” Another pointed out, “Bunker prices are currently low but, with new sulfur regulations coming in, customers are receiving a very mixed message. Nobody knows what the fuel price will be in six months’ time.”
Elsewhere it was noted, “New fuel types developed to achieve environmental compliance will have a major impact on vessel operations, but there is great uncertainty about how many incompatible variants will be available on the market. Vessels operating on a worldwide basis will face fuel compatibility challenges.”
Meanwhile, a number of respondents warned that there were still too many ships available for the cargoes on offer. “As long as an insufficient level of old tonnage is being scrapped,” said one, “and until investors in newbuildings get a grip, the situation will continue to get worse.” Another observed, “It is already six years since the downturn in the freight markets and, despite there being no ground for a sustained upturn, new tonnage continues to be ordered. We have no explanation for this.”