Monday, 11 July 2011

Shipping Confidence at two-year low, says Moore Stephens.

Overtonnaging, fuel costs and stagnant freight rates causing concern

One of the leading maritime advisory firms in the world says that confidence levels in the industry have fallen for the fourth successive quarter and are at their lowest level in two years. Moore Stephens says that overtonnaging is the single largest headache for the industry, with rising fuel costs coming in second.

On a scale of 1 to 10- with 1 being the lowest- respondents to the Moore Stephens May 2011 study averaged confidence levels of just 5.6. Corresponding levels stood at 5.8 in February this year, and are just marginally higher than those expressed two years ago in May 2009, when they averaged 5.5. It appears that charterers are the least optimistic, followed by managers and brokers. Additionally, Asian confidence levels have fallen faster than those in Europe, where they nonetheless remain the lowest worldwide.

The bite is being felt in India too. The Economic Times reported early this month that shipping companies faced a 20% rise in operational costs as bunker oil prices reached a record $650 a barrel - up 50% since last year; these are expected to stay high for sometime. Confesses Mr Ramakrishnan, MD Essar Shipping, "These are tough times for the industry. Added to the woes is the anticipated slowdown in the market due to the crisis in Europe and other macro economic factors". Operators are caught between low freight rates on one hand and escalating costs on the other; some are looking to short-term time charters to try to stay afloat.

“The key word for most companies right now is ‘survival’,” one unnamed industry player is quoted as saying in the Moore Stephens report. Another one adds, “Increasingly, companies would rather shut down operations than risk losing even more money in the current climate.” Others indicated that the present depression in the shipping markets would last for the next two or three years, although some said they hoped that the end of 2011 would bring some cheer. However, many said that banks would become increasingly chary of financing new projects. As one of the participants pointed out, “Owners are running out of cash at a time when the markets remain poor, and are likely to weaken further. We can expect to see a rise in bankruptcies and arrests as the ability of the banks to restructure becomes more constrained.”

What is clear is that overcapacity remains a huge concern, with some saying that supply would remain ahead of demand for at least a couple of years. Others hope that scrapping of vessels would increase exponentially, resulting in some balance in the market. Other pressures will influence, too. Said one observer, “Too much yard capacity will result in an adverse oversupply of tonnage”.

Moore Stephens partner Richard Greiner, says, “The dip in confidence can be attributed to both external factors and to industry concerns. Externally, we are seeing a reaction to political unrest in various parts of the world and to a number of natural disasters. The rise in fuel prices was a major factor in influencing the thoughts of our respondents. Depending on which reports you read, and where in the world you bunker your ships, fuel prices have gone up by around 50% over recent months".

He adds, “Now may be a good time to buy for those who can put the finance in place to fund a viable venture. We will see what our next survey brings. Three months is a long time in shipping.”


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