September 26 - Overall confidence levels in the shipping industry fell to their lowest level for three and a half years in the three months ended August 2011, according to the latest shipping confidence survey by accountant and shipping adviser Moore Step

Fears about overtonnaging, and continuing uncertainty about the global economy, were the main reasons for the decline in confidence. The rising cost of marine fuels was also a cause for concern.

In August 2011, the average confidence level expressed by respondents in the markets in which they operate was 5.3 on a scale of 1 (low) to 10 (high), compared to 5.6 in the previous survey in May 2011. This is the lowest figure recorded since the survey was launched in May 2008 with a confidence rating of 6.8, which remains the highest rating achieved thus far.

Confidence over the three-month period covered by the latest survey fell most noticeably on the part of owners, down from 5.8 to 5.1, the lowest owner rating recorded during the life of the survey to date. Confidence levels among charterers were even lower at 5.0, but the fall in comparison with the previous survey (from 5.4) was less than that for owners. Confidence on the part of managers fell from 5.8 to 5.6, while brokers held on to their already comparatively low rating of 5.1. Geographically, confidence remained lowest in Europe, falling from 5.5 to 5.0, its lowest level since the survey was launched. Asia, meanwhile, held steady at 5.7.

One respondent observed, "Until recently, things looked quite optimistic, but recent doubts over US loan credibility and EU financial worries have severely dented confidence." Others referred to "the most unpredictable period since the beginning of the global financial crisis" and suggested that the market was "back to levels last seen in 2001". Few could see a short-term solution to the difficulties.

Overtonnaging was a recurrent theme throughout the comments. "Markets are at rock-bottom," said one respondent, "and will stay there for some time because of the large number of new vessels due to come into service. Older vessels and speculative investors, as well as low-grade operators, will have to disappear before the situation can start to improve." Another respondent noted, "The situation looks pretty grim, given the massive amount of over-ordering."

Expectations on the part of respondents of making a major investment or significant development over the next twelve months fell, on a scale of 1 to 10, from 5.6 to 5.1 - the lowest level since the same figure was recorded in November 2009. Just one year ago, in August 2010, respondents recorded the highest figure (6.0) in the life of the survey to date. This time, owners recorded the biggest drop in this regard, while managers and charterers were also less confident. Geographically, expectations of making a major investment were down across all the main regions covered by the survey.

Having dropped out of the top three for the first time in the last survey, finance costs returned as one of the top three factors which respondents expected to influence performance most significantly over the coming twelve months. Demand trends and competition, meanwhile, maintained their ever-present record in the top three.

Overall, 22 percent of respondents (down from 23 percent last time) cited demand trends as the most significant performance-affecting factor, while 17 percent (19 percent) identified competition in this regard. Meanwhile, 16 percent of respondents, (14 percent), opted for finance costs. The percentage of respondents overall who identified fuel costs as having a significant effect on performance was down by 4 percentage points to 12 percent.

For owners, demand trends continued to be the dominating factor, despite a fall from 28 percent to 24 percent in the number of owners who put it in first place overall, ahead of finance costs and tonnage supply. The top three performance-influencing factors for managers were competition and demand trends - both cited by 17 percent of respondents in that category and both up by two percentage points on last time - followed by operating costs. For charterers, meanwhile, demand trends and competition made up the top three, ahead of fuel costs.

Geographically, demand trends emerged as the most significant factor for operators in Asia, Europe and North America (19 percent, 23 percent and 30 percent, respectively), with competition and finance costs making up the remainder of the top three.

Fewer respondents expected an increase in finance costs over the coming year - 52 percent compared to 59 percent in the previous survey. This was the case across all categories of respondent and in all geographical areas covered by the survey. Meanwhile, the number of charterers who were anticipating finance costs to fall over the next year was up from 9 percent to 15 percent, the highest figure since May 2009. Geographically, the biggest change was to be found in Asia, where the 50 percent of respondents anticipating higher finance cost was twelve percentage points down on the 62 percent recorded in May 2011.

In the dry bulk sector, the number of respondents expecting rate increases over the next twelve months was down from 37 percent to 27 percent, an all-time low in the life of the survey. The number of owners who shared this opinion also hit an all-time low, while the 8 percent of charterers of like mind was easily the lowest in three-and-a-half years.

The container ship market saw the biggest shift in opinion. In May 2011, there was a 28 percentage-point difference between the numbers anticipating higher rates and those who thought that rates would go down. Now, the gap has closed completely. Just 28 percent of respondents overall thought that rate increases were likely over the coming year - the lowest figure since November 2009 - and 28 percent expected rates to come down. Charterers were the only category of respondent recording an increase in expectations of higher rates. Owners and managers recorded the lowest figures in this regard since August 2009. In Asia, expectations of container ship rate increases were down from 41 percent to 26 percent, while in Europe the fall was from 44 percent to 27 percent.

Moore Stephens shipping partner, Richard Greiner, says, "The drop in shipping confidence to a record low is a disappointment. But it has been coming. Given what has been happening in the world, and in the industry, confidence remained surprisingly high last year, but it has started to slip in 2011. Indeed, in many ways, it is back to the levels of two years ago.

"We are starting to see now what many had predicted would happen much earlier. Banks are calling in their loans, shipping companies are filing for bankruptcy protection, ships are being arrested and auctioned around the world, and the courts and arbitration tribunals are starting to see an increase in their workloads. Financiers wants their money, and are ready to take what they can get now rather than wait in the hope that the markets will recover and enable them to achieve a return on their investment. This results in a situation in which everybody loses something. Financiers need to continue to work together with shipping companies and external financial advisers to find a way forward for viable long-term businesses, perhaps exploring the opportunities offered by independent business reviews.

"Meanwhile, costs are going up all the time. Bunker prices are the big worry. The cost of fuel has to be met and passed down the chain, at a time when money is tight for everybody. After a lull, the indications are that operating costs are once again likely to increase. The cost of raw materials also continues to rise. At the same time, freight rates are tumbling through the floor, stock markets are falling around the world, the US and European economies continue to stutter unsatisfactorily, political unrest in the Middle East shows no sign of abating, and the general economic gloom deepens.

"Our survey revealed, unsurprisingly, that the industry is much less confident now of being in a position to make a major investment over the next twelve months. With access to credit very tight, you cannot spend what you do not have. Most respondents to our survey were adamant that we do not need any more ships, and indeed that we already have too many to carry the level of trade on offer. The survey also showed, however, a fall in the number of respondents who expected finance costs to increase over the coming year. So, despite all the difficulties, now is a good time to buy, for those with access to money and a sound business plan. No industry can grow without continuing investment.

"There could be some nasty surprises, and some tough decisions, in the months ahead for operators and investors alike. But those who are in shipping for the long term will ride it out, and many will have had previous experience of doing just that. The international nature of the industry may be working against shipping at the moment, but it will once again prove to be its strength in less troubled times."

The Moore Stephens Shipping Confidence Survey includes responses from key players worldwide in the international shipping industry to a targeted, web-based survey by the Moore Stephens Shipping Industry Group. Responses were received from owners, charterers, brokers, advisers, managers and others.