Optimism Abounds in the Moore Stephens’ Shipping Confidence Survey for June-August 2015

^ Ships Transport Over 90% of the Globally Transported Cargo (Image Courtesy Sergey Novikov at ShutterStock.com)

Positive Outlook, But

Now here is some positive news. After a lull of 12 months and after sinking to their lowest levels in the last 7 years, overall confidence levels in the prospects for the global shipping industry are finally moving northwards. And considerably so!

According to the quarterly Shipping Confidence Survey by international accountant and shipping advisor Moore Stephens, average confidence levels for June-August 2015 went up to 5.9 [on a scale of 1 (low) to 10 (high)] from 5.3 in the March-May 2015 period.

These are the highest levels over the past 12 months. What is more, these figures come on the backdrop of a very bleak performance. The survey for March-May 2015 had placed these levels at their lowest since Moore Stephens started the survey in May 2008 when these were at 6.8.

Richard Greiner, Partner in Moore Stephens, aptly attributes these trends to expectations. All markets operate on sentiment, also called expectation or perception. And it was perception that pegged the fortunes of shipping at their 7-year low in the March-May 2015 survey.

Rising Global Economic Growth will Propel Global Shipping (Image Courtesy Radmila75 at ShutterStock.com)

Rising Global Economic Growth will Propel Global Shipping (Image Courtesy Radmila75 at ShutterStock.com)

Then again, the assured rise in global population, global trade, and global economic growth over the very-long-term secures the prospects for the shipping industry over the prolonged term. But there is, as always, another side.

 

Respondents were apprehensive about over-tonnage, excessive investment, low freight rates, the anti-innovative effects of cheap crude oil, progressively stringent regulations, port congestion, crew supply, and the lingering global economic slowdown that refuses to leave us.

Every three months, Moore Stephens publishes the Shipping Confidence Survey. Findings are based on the response from a cross section of pivotal players in the international shipping industry. These include owners, managers, charterers, advisors, and brokers.

The Good, The Bad . . .

Taking a cue from the overall positive sentiment, the confidence levels of respondents from all parts of the world has taken a boost. Expectations of respondents from:

  • Asia rose to 5.8 from 4.9 in the previous quarter
  • Europe jumped from 5.3 to 5.9
  • America elevated from 6.0 to 6.3

All main categories of respondents recorded similar enthusiasm. The prospects of:

  • Charterers surged from 4.2 to 6.5
  • Owners trebled from 5.1 to 5.8
  • Brokers rose from 4.8 to 5.2
  • Managers inflated from 6.1 to 6.4
    Falling Crude Oil Prices presents a Huge Challenge for International Shipping (Image Courtesy Lightspring at ShutterStock.com)

    Falling Crude Oil Prices presents a Huge Challenge for International Shipping
    (Image Courtesy Lightspring at ShutterStock.com)

Most importantly, most respondents believed that the very-long-term prospects for shipping are secure. This is because of the assured rise in:

  • Global Populations: will hit an estimated 8.3 billion to 10.9 billion by 2050. It currently stands at 275 billion
  • Global Economic Growth: will clock a projected 4.0% by 2020 despite its current stagnation at around 3.5%
  • Global Trade: will witness 4.0% growth by 2016, up from the 2.8% in 2014

Rising populations will create greater demand for goods. Growth of the global economy means a boost in the purchasing power of this global population that will further accelerate the demand for merchandise.

And with ships transporting over 90% of the world’s traded cargo, global trade via shipping is headed only one way, northwards. This is as foolproof as it ever gets.

Nevertheless, there is the inevitable other side. Respondents were primarily apprehensive about:

  • Over Capacity
  • Excessive Private Equity Investment
  • Low Freight Rates
  • Anti-Innovation Consequences of Cheap Crude Oil
  • Increasingly Stringent Regulations
Rising Global Economic Growth will Propel Global Shipping  (Image Courtesy Radmila75 at ShutterStock.com)

Rising Global Economic Growth will Propel Global Shipping
(Image Courtesy Radmila75 at ShutterStock.com)

Low Freight Rates are a consequence of the availability of very cheap crude oil, over capacity, and excessive private equity investment in shipping. Such low rates are crippling the shipping industry.

Over Capacity is the existence of more ships than are necessary to cater to the current and expected (for the short to medium term) global demand for merchandise that is transported via ships.

Excessive Private Equity Funding from non-traditional sources might further aggravate the issue of oversupply. Available funds may trigger a shipbuilding boom with meager ship breaking / scrapping. The resultant over supply will further depress freight rates.

Excessive Investments may create a Shipping Bubble (Image Courtesy iDraw at ShutterStock.com)

Excessive Investments may create a Shipping Bubble (Image Courtesy iDraw at ShutterStock.com)

Over investment is an issue particularly in the wet trades segment. If this continues, we might witness a further drop in freight rates as owners continue to make returns below the operational expenditure (opex).

You can judge the gravity of this aspect from the fact that all respondents replied positively to the prospects of making sizable investments or substantial advances over the next 12 months.

On a scale of 1 to 10, this sentiment has jumped from 5.0 in the March-May 2015 quarter to 5.3 in the June-August 2015 quarter. Again, this is the highest level over the past 12 months. No mean statistic.

Cheap Crude Oil has taken the wind out of the sails for cheaper propulsion technologies and alternative fuels. These headways are necessary for the real, very-long-term development of shipping.

Please note that innovation propels productivity. And the most potent agent for genuine, long-term economic development is productivity expansion. And despite innovation shaking up the world of shipping, the shipping industry still remains largely conservative.

Emissions from Ships Contribute about 2.7% of Global Greenhouse Gas (GHG) Emissions (Image Courtesy Arvydas Kniuksta at ShutterStock.com)

Emissions from Ships Contribute about 2.7% of Global Greenhouse Gas (GHG) Emissions
(Image Courtesy Arvydas Kniuksta at ShutterStock.com)

Progressively Stringent Regulations particularly those regarding emissions are making life difficult for the shipping industry, financially and procedurally. But then, these regulations are necessary in the long-term interest of all inhabitants of our green planet.

Although shipping is the most environment friendly mode of transportation, it nevertheless contributes to about 2.7% of the global emissions of greenhouse gases (GHG). That apart, it also emits sulphur oxides (SOX) and nitrogen oxides (NOX).

January 1, 2015 was the deadline for ships plying in Emission Control Areas (ECAs) to stop using fuel with 0.1% (by mass) or more sulphur. Most innovation on ship engines focuses on lowering emissions. And changeover is invariably expensive and cumbersome.

. . . & The Minor

Most respondents felt that demand trends, competition, and finance costs will most strongly influence shipping performance over the next 12 months. Other influencing factors include crew supply, fuel costs, port congestion, regulation, and, of course, the global economic slowdown.

Port Congestion is a logistical nightmare that hikes transportation costs, introduces unnecessary delays, lowers productivity, and impairs competitiveness.

Retailers do not get the imported merchandise on time and cannot sell it for peak-season prices. The trucking industry loses productivity as trucks have to queue for hours. Truckers measure productivity in terms of number of cargo pick-ups a day.

Labor Strikes Cause Port Congestions & Add a Fortune to Expenses (Image Courtesy igor.stevanovic at ShutterStock.com)

Labor Strikes Cause Port Congestions & Add a Fortune to Expenses
(Image Courtesy igor.stevanovic at ShutterStock.com)

Delays in exports undermine the competitiveness of the domestic industry. In a nutshell, port congestions ensure that businesses lose money every day and, yet, have to spend fortunes to contain the damage.

The recent West Coast port congestion in the U.S. resulted from souring of negotiations between the Pacific Maritime Association (PMU) and the International Longshore & Warehouse Union (ILWU).

Retail firm Kurt Salmon termed this congestion as a $7 billion problem even as the North American Meat Industry estimated its losses at an astounding $85 million a week.

Crew Shortage is another ailment for global shipping. As of June 2015, the officer crew shortfall measured about 15,000 according to the latest Manning Report published by Drewry, a global shipping consultant.

This supply needs to expand by 7% a year to satisfy the additional demand of 42,500 officers by end-2019. Current officer supply is around 615,000. Increased level of automation is partially addressing the problem.

Coming back to the survey, not many respondents expect a freight rise for tankers and container ships. But they do expect rates to take off for the dry bulk segment. Despite oversupply in the dry bulk segment, less ordering of container ships might partially correct this imbalance.

Then again, many felt that the present environment is the toughest ever for smaller players who may be gobbled up by the larger ones. Nonetheless, small players have always survived and thrived by discovering small pockets of operation where larger players are at a loss.

Another minor trend with serious ramifications is the extinction faced by numerous traditional shipping-related trades. As the European Union (EU) produces less and imports more finished goods from India and the Far East, the demand for such trades may soon vanish.

Finally

Experts say, developments in the world of international shipping reflect the realities of the global economy. For, shipping is perhaps the most globalised industry of all. Seen from this perspective, the report is indeed a distant rumble heralding fair weather for the global economy.

For more such insightful content on the state of affairs in the world of shipping, visit our blog. And for the best in marine fabrication services, marine pipe fitting, and large scale custom metal fabrication, contact Kemplon Engineering.