06 July 2016
Shipping Sector By Far Gloomiest In Transport World
Huge difference in attitudes to prospects shows world could be facing downturn
(Picture: Shipping steaming away from good times)
A survey of those involved in the transport industries has shown a stark difference in attitudes between shipping and the rest of the sectors.
Norton Rose Fulbright have published results from a sruvey entitled “The Way Ahead” - the seventh transport survey report released by the firm. It details 200 responses from a range of companies involved in aviation, rail and shipping globally including financiers, owner/operators, manufacturers, government entities and professional services firms, during April 2016.
Shipping is the least optimistic industry within the transport sector, by a significant margin. Only 15% believe that current market conditions are positive, down from 33% in 2015. 85% said the prosects were negative, which is a remarkable turnaround since 2014 when 69% felt the outlook was good.
66% believe that overcapacity is the main reason for being less optimistic and then to a lesser extent, by economic uncertainty in key markets (27%).
Respondents are more optimistic when asked to consider the outlook for shipping over the next five years, says the report.
"Fares and freight costs will increase according to 67% and the same proportion anticipate an upturn in passenger numbers and freight volumes. The number of routes and services offered is also expected to rise, according to 35%. However, just 22% believe that funding will become more readily available and 64% think that the number of enforcement actions will increase as lenders seek to protect their positions and recover losses. Most (68%) expect fuel costs to rise."
As to where the future lies, in concert with the rest of the transport sector, shipping respondants said that the Asia Pacific region was the most fruitful for investment opportunties. 58% believed this as opposed to only 16% for Europe, reflecting the economic shift that has been happening steadily for some decades now.
34% said that mergers or acquisitions were the optimal investment opportunity, whilst 13% preferred joint ventures, alliances and pools.
"Respondents expect consolidation to be at the centre of shipping businesses’ strategies over the next 12 months, either in the form of M&A (22%) or joint ventures (19%), while 22% expect a focus on the disposal of non-core assets."
Low carbon technology is seen as the driver of new investment, with 72% seeing a significant impact over the next five years.
Transparency in regulation (another term for de-regulation) is called for in terms of how government could assist shipping. 42% believe this would assist greatly as opposed to 32% for fiscal incentives and 29% in investment and infrastructure.
"Environmental regulation is seen as the regulation that has had the greatest impact on shipping over the past decade (by 49%), followed by trade and financial sanctions (by 25%)."
Almost half said that supply and demand imbalances presented the greatest challenge, which of course we have seen recently in all sectors of shipping.
12% said that lack of qualified personnel was a problem and emisson control posed a challenge to 9%.
Only 8% said political uncertainty in Europe weighed on them but this was of course prior to the Brexit result. However, 68% saw global recession as the main threat to prosperity over the next five years.
When it comes to ship financing, the report concluded:
"Bank debt is once again expected to act as shipping’s primary source of funding over the next two years (22%), followed by shareholder support (18%) and private equity (16%). Despite the problem of overcapacity in many sub-sectors of the industry, fuelled by new build vessels coming on to the market, 11% think that ECA funding will be the industry’s main source of finance."
Shipping of course is at the coal face and is the first to experience real hardship when trade suffers, as it accounts for the transport of most of it as well as having crippling debts when things go wrong due to the sheer logistics of owning and paying off debts on such massive machines as ships.
By contrast the rail and aviation industries, which deal largely with moving people more than goods, were far more optimistic.
"92% of rail and 77% of aviation respondents say market conditions are positive, compared with just 15% of shipping respondents."
About this survey
The survey, entitled “The Way Ahead” is the seventh transport survey report released by Norton Rose Fulbright. It details 200 responses from a range of companies involved in aviation, rail and shipping globally including financiers, owner/operators, manufacturers, government entities and professional services firms, during April 2016.
The full survey report is available at: www.nortonrosefulbright.com/thewayahead