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Shipping Confidence Drops From Historic Highs

The last time we took the Shipping Confidence survey to market, Russia had not yet invaded Ukraine. This edition of the Shipping Confidence Report should reflect the impact of the conflict on the shipping industry. In fact, there has been a small drop in overall confidence but it has not been huge: from 7.2/10 to 6.8/10. It is worth remembering that the 7.2/10 from February 2022 was a historic high.

This general trend is reflected in intentions to make a major investment in the next 12 months. This has continued its upwards trend for most types of business and in Europe but seen a significant fall in Asia.

This edition we asked a special question about expectations of the Baltic Dry Index in the next 12 months. Expectations are that the BDI will climb up to between 2000 and 3000. This is much more tempered than 12 months ago when many of our respondents accurately predicted the spikes in the BDI of October 2021 and May 2022, peaking at 5650 and 3369 respectively.

Overall confidence

Confidence has dropped from its historic high of 7.2/10 in February 2022. While confidence in Europe has dropped slightly, Asia has seen confidence drop from 8.7/10 to a more normal 6.7/10. Confidence has been steady across types of business except for Managers who have seen confidence drop from 6.7/10 to 5.6/10.

What our respondents said;
“ Very little visibility, rough seas ahead so be cautious, well prepared and look after your vessel.”
“We operate in both the tanker and dry bulk chartering markets. The tanker markets are going through a positive period, boosted by myriad factors. The dry bulk markets are less positive, however, with China’s economic slowdown having a strongly detrimental impact.”

Major investment

The likelihood of respondents making a major investment over the coming year has come down from the 6.4/10 high of February 2022to 6.2/10. This has fallen for Managers but improved for Brokers and for Owners who have continued to break records by reaching 7.2/10. The likelihood of a major investment has increased slightly in Europe to reach a new record of 6.6/10 but fallen substantially in Asia. The score for Asia has plummeted from a record 7.7/10 to just 4.7/10.

Finance Costs (net score)

Expectations that finance costs will rise have continued to climb to yet another historically high net score of +89%. As in February 2022, this is an almost unanimous sentiment with all business types and both Asia and Europe expecting higher finance costs over the next 12 months.

Business Performance Factors

The big changes in business performance factors that we saw in February 2022 have been reversed. Regulation, which broke into the Top 3, has dropped in importance and is now cited by just 6% of respondents. Demand trends has returned to being the most important business performance factor after having being displaced by Competition in February 2022. Finance costs makes up the Top 3 factors in Au-gust.

Freight markets

The net freight rate sentiment in tankers has risen from 58% in February to 71% in August. This increase has been driven predominantly by a rise in sentiment amongst Brokers and in Europe .

The overall proportion of respondents expecting higher dry bulk rates has fallen to +5% from +10% in February 2022. The drop has been driven predominantly by negative changes among Brokers and in Asia.

Container ship rates expectations have continued to descend to previously unknown depths, dropping froman overall sentiment of -32% to -57%. Unsurprisingly, the negative sentiment is being driven by all types of business and across Europe and Asia.

Baltic Dry Index (BDI)

Our special question for this edition of Shipping Confidence relates to expectations of the BDI in 12 months time. 57% of respondents expect the BDI to land between 1500 and 2500. Another 12% expect it to be slightly higher at 2500-2999.

Unsurprisingly, confidence in the shipping industry has fallen slightly from the historic highs of February 2022. Both confidence and ‘intend to make a major investment’ measures have seen falls, driven mainly by drops in the Manager type businesses and in Asia.

We have also seen a return to normal when it comes to business performance factors; the usual Top 3 of Demand, Finance costs and Competition have returned. Regulation had broken into the Top 3 in February 2022 but has slipped back down the rankings. This may reflect the fact the climate change and de-carbonisation, the drivers of most new regulation, are pushed out of mind by more immediately urgent issues.

Our special question for this edition asked respondents to predict where the Baltic Dry Index will sit in 12 months’ time. The BDI currently sits at about 1800. A majority of respondents expect the BDI to be between 1500 and 2500. Given the expected impact of inflation and recession on developed economies, we could, perhaps, have expected the predictions to be lower.
Source: BDO

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