Shipping finds its mojo, but can it turn surge in optimism into cash?

Improving trade growth, firming freight rates and low orders have fuelled a rise in confidence that now needs to be converted into results

Research analysts often get a bad rap in shipping. When they conclude markets are going to crumble, they are roundly criticised for talking the business down. When they recommend shipping stocks as likely to show strong price rises, they are often laughed at for blind optimism.

Some, of course, are better than others. There are those whose insights should be listened to, and others perhaps less so. Just like journalists and publications, some might add.

So it was with interest to read this week the latest benchmark quarterly from Frode Morkedal, Herman Hildan and John Gandolfo and their team at Clarksons Platou Securities, which revealed a distinct strengthening of their outlook for shipping equities.

In the first nine months of this year, their basket of 58 shipping equities has shown a total return up 11%, compared with annual falls of 20%, 18% and 29% from 2014 to 2016 .

They point to the fundamental improvement in the supply-demand balance as fleet growth decelerates amid rising confidence about growing trade volumes. Meanwhile, Clarksons’ secondhand price index remains at its lowest level since 1998.

Such is their confidence in the outlook, they argue we now sit at perhaps the best-value investment opportunity since the aftermath of the late 1980s crash, 30 years ago.

Although rather more subjective than the analysts' hard data, this publication has also proved a useful barometer of the industry’s appetite for new venture and acceptance of risk over nearly three decades.

Through the 1990s, issues such as regulatory compliance — or, more accurately, the commonplace lack of compliance — dominated attention. Deal-making was often incremental. That agenda changed dramatically in the 2000s as the newbuilding boom kicked in, driven by China’s powerful trade growth.

668a14945200c03869a13f88ef3b43f3 Shipping markets are strengthening on the back of healthy trade growth  Photo: Scanpix

Then, in the past 10 years, it has been a story of debt management, cost-cutting and clinging on to whatever cash flow could be generated, in the hope that times must surely improve at some point.

This year, that narrative has moved on once more. Almost imperceptibly, our pages, both online and in print, have featured an increasing number of stories featuring constructive deal-making, company-building and even newbuildings.

Scorpio Group’s venture into offshore last week is only the latest ambitious gambit we have reported.

The atmosphere at our TradeWinds Shipowners Forum events and many other industry conferences has also been markedly more buoyant. Speakers have more often been looking to future opportunities than yesterday’s mistakes.

Yet it would be blind to the reality of many markets today to allow over-exuberance to dominate thinking.

"Perhaps the single most important factor is one that is almost entirely out of the industry's control: demand from customers to have goods shipped"

While the dry bulk and container markets are looking healthier for tonnage owners, they are not yet strong. Results generated by players are merely better than the apocalyptic value destruction seen in the last three years. Meanwhile, crude tanker markets have stumbled and products tanker markets have disappointed. And the less said about offshore, the better.

Confidence that has emerged this year is not misplaced. Perhaps the single most important factor is one that is almost entirely out of the industry's control: demand from customers to have goods shipped.

After repeated downgrades of trade growth for most of this decade, we are seeing an alignment of more positive figures. For the first time since the crash, all the world’s major economic regions are set to grow this year.

And with limited expansion of the world fleet possible in the next two years, the prospects have improved. What is needed now is the skill and ambition to execute and deliver results.