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Shipping confidence falls to two and a half year low, says Moore Stephens

Shipping confidence falls to two and a half year low, says Moore Stephens
Low oil prices and overtonnaging have pushed overall shipping confidence to a two-and-a-half-year low, consultancy Moore Stephens says.

On a scale of 1-10, confidence fell to 5.5, down from the 5.7 in November 2014, and is the lowest figure since August 2012.

The biggest fall was reported among charterers, who expressed a confidence level of 3.9 compared with 5.4 in Moore Stephens’ previous survey. Owner confidence fell too, to 5.4 from 5.5.

Various respondents noted that while low oil prices had produced “strong demand” and a “strengthened crude oil shipping market,” there was risk of “a trickle-down effect of cutbacks in the oil sector [which] will result in a decrease in business across the board for companies in the shipping industry.”

"The fall in oil prices, which at first blush might have seemed to be good news for an industry with such a high fuel bill, has its down side too,” said Richard Greiner, Moore Stephens partner, Shipping Industry Group. 

Meanwhile respondents were adamant that problems caused by overtonnaging were not going away: “The dry bulk sector is still suffering from overtonnaging in all ship sizes,” said one. 

Another commented: “Dramatic over-ordering in the dry cargo market in the last two years has led to the catastrophically bad market we have today.

"What is now even more frustrating is that those clever guys who thought that dry cargo newbuildings were a good idea are now starting to convert them to tankers. Excellent! Let’s hit another sector that has just found its feet with more unnecessary orders! When will people learn?”

“Overtonnaging is not so much the elephant in the room as the room itself,” said Greiner. “It is a major factor in the collapse of freight rates. A number of respondents to the survey saw a link between what they regarded as easy access to non-traditional ship finance and a failure to improve the level of overtonnaging. There is a certain logic to this argument, but the day when shipping fails to attract new money from both internal and external investors is the time to really start worrying.”

The likelihood that respondents would make major investments in the next year fell to 5.1 from 5.3, its lowest since February 2012, but managers were more confident in this regard than they were three months ago. One respondent said, “Short-term investors are likely to exit the market at a loss when they find there is no quick and easy money to be made.”

“The current state of the Baltic Dry Index (BDI) tells its own story,” Greiner added. “Having nudged towards 12,000 in mid-2008, it recently hit a thirty-year low of 509. Lower commodity prices, reduced demand and an oversupply of ships are among the reasons cited for this collapse in the world’s dry bulk freight rates.

“Shipping is doing its best to live up to its reputation as a highly cyclical industry. Confidence has fallen to its lowest level for two-and-a-half years, having been at its highest for six years in first-quarter 2014. A year is a long time in shipping.”

The result compares with a high of 6.8 when the survey was launched in May 2008, shortly before the collapse of Lehman Brothers in September 2008 and the onslaught of the global economic crisis. The level of 6.8 has not been seen since.