Shipping workforce of low priority
The usual overcapacity, a lack of funding sources and fuel availability are all highlighted as causes for concern in Norton Rose Fulbright’s latest ‘The Way Ahead’ survey. But a lack of investment in the workforce and a diluted interest in investing in India, Latin America and, to some extent, Russia reveal more of the true colours of crisis-hit shipping companies.
Investment in shipping’s workforce is of low priority, despite an acknowledged lack of suitably qualified people, according to a global survey undertaken by law firm Norton Rose Fulbright. Just 6% of respondents to the Norton Rose Fulbright ‘The Way Ahead’ transport survey believed that investing in their workforce would be the most advantageous investment opportunity to their business.
Instead, shipping companies are looking in invest in strategic alliances, joint ventures and pools, in a bid to bridge the skills gap. There is also an expectation from respondents to the survey that today’s dominant operators and owners will continue to increase their market share. 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.
In terms of operational efficiency, an imbalance between supply and demand, and fuel availability and cost are seen as the greatest challenges. A total of 40% of respondents viewed overcapacity in shipping as the greatest threat to a successful recovery. The fifth Norton Rose Fulbright “The Way Ahead” Transport Survey – Where Next? is based on 850 responses from people worldwide, over 260 of which were from the shipping sector.
Technology slump
Surprisingly, the survey findings report relatively low interest in investment in technological improvements, despite regulatory changes forcing adoption of emissions and pollution control technology in the industry. Responses on funding, however, paint a more positive picture: the survey reveals that a substantial 46% of respondents sought or offered funding during 2013. A large minority of respondents (29%) reported that they are satisfied with their access to funding and are not looking for new financing models or incentives to improve the availability of funding.
Norton Rose Fulbright points to “strong support for government help in the form of guarantees or soft loans, and for specialist funding institutions to be set up for the transport 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.
However, just 21% of respondents are satisfied with their current access to funding, and the sector would reportedly welcome a more beneficial view of asset values for risk weighting purposes, with 23% certain that this would help to increase the amount of funding for their sector.
“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,” says Simon Hartley, co-head of shipping, Norton Rose Fulbright. “The availability of finance will be crucial for shipping to take advantage of improved sentiment and opportunities for growth.”
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.
China continues
Regionally, China remains the most popular investment opportunity – cited by 18% of respondents – and is expected to remain so for the next five years, but interest in investing in India, Latin America and, to some extent, Russia, has diminished.
After China, respondents believed that North America (13%) and Western Europe (12%) will offer investment opportunities going forward.
Bullishly, two-thirds (66%) of respondents from the global shipping sector expect freight rates to rise and while 66% of respondents believe that current market conditions are positive for their business, this is less optimistic than aviation (75%) and rail (81%).
“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,” says Philip Roche, co-head of shipping, Norton Rose Fulbright.
“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.”
“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,” adds Harry Theochari, global head of transport, Norton Rose Fulbright.
“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.”But despite continuing overcapacity concerns, 48% of respondents believe new opportunities are emerging for shipping, with investment in additional vessels seen as the most popular investment opportunity.