The contribution of shipbroking research to the shipping industry
A personal view by Dr. Philip Rogers, MD of SSY Consultancy & Research Ltd
With so many shipping decisions driven by “gut feeling” and instinct, what is the role of shipbroking research today? Industry players sometimes forget that it was not until relatively recently that any formal research existed at all. Even today there are just a handful of companies that can afford the expense of a research department. At the same time, somewhat paradoxically, there is a wealth of information in circulation. There have never been more specialist shipping magazines, newspapers and consultants. But does this mean that better decisions – and fewer mistakes - are being made?
If the answer is no and the instinct of most shipowners still predominates, then what is going wrong? Has shipbroking research failed the industry or is the industry being swamped by this oversupply of information?
Initially it is necessary to define the role of shipbroking research. In most cases, and certainly in the case of SSY, this role has four strands, usually in the form of a written report, for a client about a specific topic. This might typically mean something like the prospects for Panamax vessels over the next five years. Second, it means supporting brokers in presentations and expressing impartial views about the market situation. This impartiality is critical and I will return to it later. Third, it means undertaking consultancy for clients who are not part of the mainstream of shipbroking. Representative clients here would include governments, international organisations, ports, solicitors, etc.
Fourth, the research departments have a role in generating publications – usually weekly or monthly market reviews and forecasts. These regular reports provide the staple cash flow that these departments need in order to survive. Consultancy revenue is rather like sale and purchase income - highly erratic. If one were to add a fifth role for these departments, it would be a showcase for the company as a whole. Through the regular publications an impression of the company as a whole can be obtained. If the research is serious, professional and original in its thinking then this can be the trigger that leads a new client to pick up the phone to one of our brokers. However, research is not just about analysing the past. The need is for forecasts but what many potential users of research departments seem to forget is that these departments will rarely voice their opinion about the market in public. After all what is served by telling all of the market the answers to their questions? It can be all too easy for research to be assumed to be talking the market up or down. A research department services its own clients whether they are clients of the brokers or direct contacts. The departments themselves are busier than ever and many are the largest they have ever been. It is no idle boast to say that research departments are consistently the hardest working sections of any shipbroking company. So why, exactly, do we still have huge swings in the market? Is it because research departments “get it wrong”? On the contrary, the track record of most dedicated research departments is often very close to the mark. Take, for example, the case of fleet renewal, usually the most contentious and opinionated area of the market.
A research department will often be the first to identify a “gap” in the market. When it does, what does it do with the information? Inevitably the news will leak out and of course others in the industry will also be undertaking their own research independently. At the same time it can be several months between an identifiable gap appearing and the first orders for those vessels to fill the gap being placed. When this happens there is also often a build up of orders that have been held back by owners not wanting to be the first to commit.
In due course this wall of orders is delivered and the market turns down. Their new ships values slump, owners feel they have been let down and research departments are cursed. So what are research departments to do, caught as they are between a rock and a hard place? Inevitably they must publicise their findings, yet if they do the market responds by over-ordering.
This is where the impartiality of research is important. Opinions in research are developed by continuous market analysis. These may, or may not, coincide with the general market view as expressed by most brokers. Occasionally this will be at odds with the perceived market view and efforts may be made to force researchers to “adapt” their view for the sake of concluding a deal. This is a slippery slope that inevitably leads to the client suffering in the long run.
What conclusions can be drawn? If research is so wonderful and has all the answers why do we still have massive swings in the market? Three points need to be made:-
Researchers (along with everyone else) can never forecast the often large and unexpected swings in the market caused by unpredictable factors such as a shortage of water in the Panama Canal, or an oil price rise by OPEC, or a decision to import millions of tonnes of steel by China. Neither can they foresee a grain harvest failure and the grain trade itself remains a major influence, some would say the major influence, on the market. Not all the trade and industrial data that forms the backbone of any demand forecast is available on a timely or comprehensive basis. It is not the role of research to warn the market about these forthcoming swings - but it is its role to warn its clients.
Finally, it remains a fact that the vast majority of owners, charterers and banks never commission research geared to their particular needs. It is difficult to quantify precisely but I would estimate that serious independent research, such as that which can be obtained from an accredited shipbroking company, is undertaken by no more than 1% of these interested parties. So rather than blaming research they should actually be beating a path to our door!