- Freights are expected to rise and a greater proportion of funds will be allocated to investment over operating costs
- Additional vessels are viewed as the best investment opportunity
- China is the most popular market for growth
- Further consolidation is expected and new participants will continue to enter the sector
- Funding is expected to come from a wider range of sources but its availability remains a concern
- Overcapacity poses the greatest challenge to the future efficiency of the shipping sector
- Investment in building the skills and size of their workforce is shipping’s lowest investment priority but a lack of suitably qualified people is highlighted as a challenge.
According to global legal practice Norton Rose Fulbright’s fifth “The Way Ahead” Transport Survey the shipping sector is anticipating a recovery. Two-thirds (66%) of respondents from the global shipping sector expect freights to rise, and almost half (45%) expect the allocation of available funds to investment rather than operating costs to increase.
The survey report, entitled Where Next? reveals that 48% believe new opportunities are emerging for shipping, with investment in additional vessels seen as the most popular investment opportunity. China is viewed as the market offering the greatest investment opportunities, cited by 18% of respondents, followed by North America (13%) and Western Europe (12%).
Respondents are also anticipating further consolidation and new investors entering the shipping sector. Almost a quarter (24%) believe that the most significant change in the participants in the shipping sector will be the increased dominance of larger owner operators and a further 24% anticipate increased joint ventures, alliances and pooling activity. Over one-fifth (22%) believe alternative sources of funding will bring new players into the sector.
The survey also suggests that shipping is now drawing on a wider range of sources of funding. Just one-fifth (21%) believe bank debt will be their primary source of funding for the next two years, followed by 19% who anticipate it will come from shareholders, 18% from private equity and 16% from the capital markets.
While 66% of respondents believe that current market conditions are positive for their business, the shipping sector is less optimistic than aviation (75%) and rail (81%).
Overcapacity is seen as the greatest threat to a successful recovery for the shipping sector, cited by 40% of respondents. As a result, shipping is far less enthusiastic about the introduction of new high capacity assets than the aviation or rail sector (which is also considering the impact of the introduction of high speed rail) with 30% of shipping respondents of the belief that they will simply create overcapacity, compared with 11% of aviation respondents and 6% of rail respondents.
The availability of funding is also a concern. Just 21% of respondents are satisfied with their current access to funding, and the sector would welcome a more beneficial view of asset values for risk weighting purposes, with 23% of the belief that this would help to increase the amount of funding for their sector.
Just 6% believe that investing in their workforce would be the investment opportunity most advantageous to their business but 13% highlight a lack of suitably qualified people as hampering the future efficiency of the sector.
Harry Theochari, global head of transport, Norton Rose Fulbright, commented:
“New and exciting opportunities are opening up for the shipping sector and it is encouraging to see the sector planning for recovery, albeit more cautiously than the aviation and rail sectors. China, which has stated publicly its ambition to create the world’s largest maritime centre, is seen as a key market, and the sector is looking also at a diverse range of markets for growth.”
“However, overcapacity is an issue and it remains to be seen whether enthusiasm for investment in new vessels could create the overcapacity issues we have seen in the past.”
Philip Roche, co-head of shipping, Norton Rose Fulbright, commented:
“The impact of the global financial crisis has caused a great deal of pain for shipping but there are now real signs that the industry is beginning to rally. Funding and overcapacity are seen as key issues but the shipping sector also faces wider ranging challenges, such as the need for investment in the skills and size of its workforce to ensure that there are enough suitability qualified people to support the safe growth of the sector and the increasing environmental regulation of shipping which will continue to require new solutions and funding.”
Simon Hartley, co-head of shipping, Norton Rose Fulbright, said:
“The reduction in the availability of traditional forms of funding as a result of the economic downturn has meant that shipping is now drawing on a wider range of financing, which is bringing new blood into the sector. The availability of finance will be crucial for shipping to take advantage of improved sentiment and opportunities for growth.”