April 1 - Overall confidence in the shipping industry fell to its lowest level for two and a half years during the three months up to February 2015, according to Moore Stephens' latest Shipping Confidence Survey.

Respondents to the survey identified overtonnaging as the biggest factor behind the fall in confidence, but also expressed concern about the effect of lower oil prices on the industry and the growth of investment by financiers from outside shipping.

In February 2015, the average confidence level expressed by respondents in the markets in which they operate was 5.5 on a scale of 1 (low) to 10 (high), down from the 5.7 recorded in November 2014. This is the lowest figure since August 2012.

Charterers recorded the biggest fall in confidence, down to 3.9 from 5.4 in the previous survey. Confidence on the part of owners was also down (from 5.5 to 5.4), while that expressed by managers was slightly up, from 6.1 to 6.2.

A surplus of tonnage, particularly in the dry bulk trades, dominated the comments of those who responded to the survey. One 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?"

Falling oil prices were another recurring theme among respondents, one of whom warned: "The trickle-down effect of cutbacks in the oil sector will result in a decrease in business across the board for companies in the shipping industry."

A number of respondents also expressed concern about the effect on the markets of the entry into the industry of new money from non-shipping investors. One complained: "Excessive liquidity from US markets being invested in Far East shipbuilding programmes is killing any improvement in the market."

The survey revealed that the likelihood of respondents making a major investment or significant development over the next twelve months was down on the previous survey from 5.3 to 5.1, the lowest figure since February 2012, although managers were more confident in this regard than they were three months previously. 

Less respondents expected finance costs to increase over the next twelve months, with one noting: "Access to non-conventional ship finance has made it much too easy for vessel owners to order new tonnage far in excess of prospective demand growth."

Although some mentioned that strong demand driven by the fall in oil prices has strengthened the current crude oil shipping market, others noted that the dry bulk sector is still suffering from overtonnaging. Respondents also remarked that containerisation was moving into some trades previously dominated by breakbulk vessels.

Moore Stephens partner Richard Greiner said: "Overtonnaging is not so much the elephant in the room as the room itself. It is a major factor in the collapse of freight rates. Elsewhere, everything from continuing problems in the world economy to the imposition of sanctions (most recently those involving Russia) has helped neither the confidence nor the performance of the markets. Even 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.

"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. 

"Over the past twelve months and more we have seen the banks start to rediscover their appetite for shipping to some degree, while private equity investors have become increasingly significant players. The current ship finance market is much-changed from the traditional model which many of today's established players grew up with. But different doesn't have to be bad and, however volatile the market, new investment is essential to both survival and growth.

"None of this will be news to those experienced industry players who, to varying degrees, have seen tough markets before and who will find the wherewithal and the patience to ride out the current difficulties. It is less certain whether others will be able, or willing, to hold their nerve so well."