Thursday, 27 September 2012

Shipping Confidence drops to lowest level since 2008

International shipping consultancy Moore Stephens says that, based on a recent survey conducted by the firm, confidence levels in the shipping industry has touched new lows in the last quarter ending August. Interestingly, this fall has come after three quarters of improved confidence; nonetheless, industry confidence today is at its lowest levels since the survey commenced in 2008.
Between May and August this year, the average confidence level in shipping fell from 5.7 to 5.3 on a scale of 1 to 10 (high). The August figure was identical to the one thrown up in August the previous year, after which confidence had been inching upwards. The first survey in May 2008 had thrown up a corresponding number of 6.8.

The reasons for this renewed pessimism come as no surprise. The biggies are, of course, the continuing uncertainty in the global economy and excess tonnage; there is still, the respondents of the survey agree, a glut of newbuildings hitting the market. Analysis that Greek owners have reportedly booked over 400 vessels in Korean yards means that no improvement in the situation will be seen for years, they say. 

A market player who responded to the survey said, “The shipping market will remain difficult for the next few years. More owners are now tempted to order new ships as building prices will be at their lowest level for many years. Shipyards and governments will do everything they can to prevent the closure of yards, which will create very interesting special financing packages aimed at getting owners to order new ships. So the market will be flooded with more new vessels, extending the time it will take for the industry to recover.”

Respondents agreed that shipping was haemorrhaging money. Said one, “Companies are burning up cash reserves at a frightening rate, given the appalling earnings currently on offer. Banks are increasingly reluctant to put out any money, let alone new money, except in very specific sectors. The economic outlook, particularly in Europe, is dismal, while China looks increasingly likely to suffer a hard landing. Let’s hope that the darkest hour really is just before the dawn.” 

The drying up of shipping finance is exacerbating the situation, the survey shows. “The accelerating withdrawal of banks from the shipping finance market is effectively depressing ship values,” was one comment. “We anticipate that bank finance for medium-size owners and fleets will be largely unavailable for some years yet.”

Charterers, the least confident in the last survey, were the only respondents who were upbeat this time around, with confidence ratings of 5.7 compared to 5.0 in May. Owners’ confidence was down from 5.6 to 5.1, probably because, as one respondent succinctly said, “Low dry bulk rates and very low tanker rates, more ships to come into a relatively modern fleet, cheap newbuildings, poor demand outlook - what's to like?”

Another said, “It is astonishing that a whole industry has been misreading the markets, which has led to the prospect of excess building capacity for years and years to come, based on wrong assumptions by analysts.”


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