Shipping Confidence Hits Eighteen-Month High

Confidence in the shipping industry rose in the last quarter to its highest level for 18 months, according to the latest Shipping Confidence Survey from leading shipping adviser and accountant BDO.

The average confidence level expressed by respondents to the survey was 6.4 out of 10.0, compared to 5.8 Q3 2019. This is the highest rating since the same level of confidence was recorded in May 2018, and it is necessary to go back to February 2014 in order to see confidence at a higher level.

Confidence on the part of both managers and owners was up to 6.9 out of 10.0 from the levels recorded in the previous survey of 5.9 and 6.4 respectively. But confidence in the broking sector was down from 5.1 to 3.9, the lowest rating for this category of respondent since the survey was launched in May 2008. Confidence was down in Asia from 6.8 to 6.0 but up in Europe and in North America from 5.7 to 6.2 and from 4.3 to 6.8 respectively.

The likelihood of respondents making a major investment or significant development over the coming year was unchanged from last time at 5.5 out of 10.0. Owners’ confidence was down from 6.5 to 6.3, while that of brokers dropped from 4.4 to 2.9. Meanwhile the expectations of managers held steady at 6.1. Expectations were down in Asia and in Europe, from 6.6 to 5.7 and from 5.4 to 5.1 respectively.

The number of respondents expecting finance costs to increase over the coming year was up from 25 to 37 percent. Whereas 57 percent of managers (up from 20 percent last time) anticipated more costly finance over the next 12 months, just 32 percent of owners (albeit up from 27 percent last time) thought likewise.

In the freight markets, the number of respondents anticipating higher tanker rates over the coming year was up from 43 to 46 percent, with little or no movement in the expectations of main respondent categories compared to the previous survey. In the dry bulk sector, overall expectations of rate increases were up from 39 to 50 percent, and in the case of brokers alone from 20 to 71 percent. The numbers expecting higher container ship rates, meanwhile, rose by 10 percentage points to 29 percent. Net rate sentiment was positive in all three main tonnage categories.

In a stand-alone question, respondents were asked to estimate where the U.S. Federal Reserve’s Federal Funds Rate would stand in 12 months’ time. 24 percent of respondents put the figure at 1.50 percent, while estimates of 1.75 percent and 1.25 percent were favored by 17 percent and 16 percent of respondents respectively. 15 percent of respondents predicted that the rate would reach 2.00 percent, while 11 percent predicted a figure of 2.25 percent. Overall, 16 percent of respondents put the likely rate at no higher than 1.00 percent.

Richard Greiner, Partner, Shipping & Transport at BDO, says, “Appetite for investment remains steady despite volatile economic conditions. This is despite general ongoing geopolitical uncertainty, and notwithstanding specific concerns about a variety of issues including Brexit and President Trump’s impeachment inquiry. 

“Shipping is not for the faint-hearted, and committed long-term players remain the most likely to achieve the best returns. Our latest survey revealed an increased expectation over the next 12 months of dearer finance costs. Such costs remain one of the most significant performance-influencing factors for our respondents. 

“But the cost of regulatory compliance is slowly gaining in importance, and will continue to do so. IMO 2020 was recently categorized by one commentator as a ‘perfect storm’ for litigators. It is also part of a much larger commitment by the shipping industry to enhancing its green credentials, and in the process becoming a more technologically advanced and environmentally responsible sector. As such, it should be eminently attractive to investors.”