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Shipping’s problems of over-confidence

Shipping’s problems of over-confidence

When we hear that “confidence is increasing” among members of the ship-operating community, should we raise our glasses and loudly voice our pleasure at this revelation of imminent recovery? Or should we mutter “here we go again” and prepare for the next burst of enthusiastic over-ordering?

And when we read that hard-working international accountant and shipping adviser Moore Stephens has concluded that “confidence is softening”, maybe we should not be ashamed to admit feelings of relief. There is nothing inherently wrong about being “counter cyclical”, in a business where timing is everything, but where too many supposedly clever people seem to make a career of getting this spectacularly wrong.

Maybe we should look more closely at the motives people in shipping have as they leap on an eastbound aircraft en route to some far eastern shipyard, where, in front of shipbuilders trying hard to hold back their tears of gratitude, they contract for a round dozen capesizes, or perhaps six “neo-overpanamaxes” (a term to which I am told we should become accustomed).

They are, we are led to believe, showing their confidence in a rising market and a recovery in world trade. On the other hand, they may be merely following their herd instinct – we will leave out any reference to lemmings – and illustrating the importance of what clever analysts describe as “market sentiment”. Probe a little deeper and it transpires that they are taking the opportunity to order these ships – because the price is attractive – or even less sensibly – because the credit was available. The question of need for the vessels probably did not register in the list of priorities.

“I am a shrewd investor. You are a consummate risk-taker. He is an irresponsible gambler”. It never seems to occur that these descriptions might be of the exactly same person, merely viewed from a different perspective. But in an industry which suffers from endemic overtonnaging in just about every sector, it is difficult to rationalise a reason for adding further to this malign situation.

That delightfully cheerful seer Martin Stopford, whose demeanour does a great deal to negate the reputation of economics for profound gloom, memorably likened the shipping industry to the social services. He is right, if you consider an industry which has found it hard ever to earn an adequate reward for the provision of shipping services and which provides these so cheaply that its customers scarcely factor in the costs of marine transport.

With this over-provision, you might think that ship operators would have learned their lessons and ignore the blandishments of desperate shipbuilders and enthusiastic financiers alike. With a ship built for a quarter century of use, everyone slow steaming or lurking around in crowded anchorages awaiting a better rate, the consequences of over-tonnage would appear obvious. A lengthy period of abstinence from ship-buying might be indicated.

But not to some, whose reaction is to scale up their fleet with ever-bigger units, citing their transport unit costs or fuel economy. We have hedge funds, entering the fray, sniffing the sea air and expanding their financial lungs with tonnage, which they probably regard as a simple commodity. Shipping shares are at rock bottom, therefore they must be a good buy! And we have these exhalations of confidence, albeit slightly softening. We might be reasonably confident that over-tonnage will remain and if, by some curious and unforeseen improvement, there is a sudden and heartening demand for all sorts of ship, we can rest assured the practitioners will make sure it doesn’t last for long. Some of us have been here before. Several times.

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