The way ahead - Norton Rose Fulbright

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The way ahead Transport survey Sixth report

Contents 04 Executive summary 05 Key findings 06 Aviation 18 Rail 30 Shipping 42 Methodology 43 Contacts 44 About Norton Rose Fulbright

Transport survey

Executive summary Welcome to the sixth edition of Norton Rose Fulbright’s transport survey, The Way Ahead. Over the past six years we have explored how the aviation, rail and shipping industries are developing, tracking challenges and opportunities throughout the transport sector. This year’s survey indicates that a real divide is emerging, with aviation and rail on one side and the shipping industry on the other. Sentiment among respondents from the shipping industry has deteriorated sharply over the past year. In 2009, a mere 7 per cent of respondents reported that market conditions were good or very good. Last year, 69 per cent were optimistic. That has changed this year: just a third of our shipping respondents report that the current trading environment is positive for their business. Overcapacity is the main reason given for their despondency. The outlook for aviation and rail, however, is increasingly encouraging, and optimism has shot up. In the immediate aftermath of the global crisis, just 5 per cent of aviation respondents and 21 per cent from the rail industry reported that market conditions were good or very good. This year, an overwhelming majority rate current market conditions as positive. This level of optimism is attributed to more readily available funding for investment and growth, an anticipated return to economic stability in key markets and the emergence of new opportunities. Lower oil prices and an associated fall in fuel costs are also benefiting both aviation and shipping. The transport sector as a whole is concerned about the health of the global economy, together with the threat of an emerging market slowdown and continued political and economic uncertainty within the Eurozone.

04 Norton Rose Fulbright – July 2015

Regulation weighs heavily on the sector. The regulations felt to have had the greatest impact on transport businesses are the introduction of stringent environmental laws. The way in which new laws are enacted – with uncertainty around the application and enforcement of new and existing regulations – is also reported to have had farreaching consequences. In fact, deregulation and greater transparency around regulation come second on respondents’ wish lists when asked what form of government support would be most helpful for their industry (infrastructure investment comes top of the list). Most respondents across aviation, rail and shipping anticipate an upsurge in demand as a result of rising passenger numbers and freight volumes. The number of routes and services offered is also expected to increase and investment in infrastructure is forecast to escalate – although respondents are generally less confident that fares and freights will rise. Around half of respondents from aviation and rail and a third of respondents from shipping expect additional funds to be allocated for investment over the next five years. Our survey indicates that this funding is likely to come from a wide range of sources – but the proportion of respondents who anticipate that traditional bank debt will become the main source of funding for transport is at its highest level since our survey began in 2009. Many thanks to all those who took the time to respond to our questions. I hope that you will find much useful insight in this report. Harry Theochari Global head of transport Norton Rose Fulbright

Key findings

Key findings

81%

91% 88%

predict a rise in passenger numbers and freight volumes

One-third of aviation and shipping respondents believe an emerging markets slowdown poses the greatest threat to their industry

of rail and

of aviation respondents say market conditions are positive The availability of funding is the main reason for optimism

57% think fixing infrastructure bottlenecks is the most crucial form of infrastructure investment

China is expected to offer the best investment opportunities over the next five years

27%

of aviation respondents say capital markets will act as the main source of funding over the next two years

50%

44% view consolidation as the optimal investment opportunity

49% of shipping respondents say environmental laws have had the greatest impact on how the industry is regulated

of rail respondents predict that new sources of funding will represent the most significant change to the industry over the next five years

Norton Rose Fulbright – July 2015 05

Section 01

Section 01: Aviation

Question 01

Are current market conditions generally positive for the aviation industry?

86+14+S YES

88% 12% NO

The aviation industry is increasingly optimistic: 88 per cent of respondents believe that current market conditions are positive for the aviation industry (up from 75 per cent in 2014). The aviation industry’s growing confidence is attributed to the availability of funding for investment and growth, followed by an anticipated return to economic stability in key markets. Respondents also highlight the fall in the oil price, and consequently, fuel costs. The small minority of respondents who do not believe current market conditions are positive for aviation point to global economic uncertainty and, to a lesser extent, overcapacity and governmental operational restrictions, such as regulation and trade barriers.

When considering the outlook for aviation over the next five years, respondents are almost unanimous in their belief that passenger numbers and freight volumes will increase. Respondents are less confident that fares and freights will rise, however, and that the allocation of available funds to investment rather than operating costs will increase. The next five years are expected to bring increased innovation, with the majority of respondents of the view that the number of routes and services will rise. An increase in infrastructure investment is also forecast.


Transport survey

Question 02

If yes, what is the principal reason for your view?

29+37+638H 3

9

5

28

9

3

6

37

An anticipated return to economic stability in key markets Funding for investment and/or growth is available New opportunities are emerging Reduced competition The reduction in the oil price The reduction in fuel costs The impact of infrastructure improvements The impact of technological improvements Other

Question 03

If no, what is the principal reason for your view?

40+20+H 20

40

20

20

Environmental regulations Global economic uncertainty Global political uncertainty Governmental operational restrictions (e.g. regulatory/trade barriers) Inadequate infrastructure planning and investment Lack of funding Overcapacity Reduced activity in key markets The enforcement by creditors on debt obligations The impact of technological improvements The reduction in the oil price Other



Question 04

What do you think will happen over the next five years in the aviation industry? Rise

Stay the same

Fall

46+28+26w 74+26+w 97+3+w 70+23+7w 53+40+7w 26

46

Fares/freights

28

26

74

Investment in infrastructure

3

Passenger numbers/freight volumes

97

7

23

70

Routes/services offered

7

40

The allocation of available funds to investment rather than operating costs

53


Transport survey

Question 05

What do you view as the optimal investment opportunity currently for the aviation industry?

285+301303+ 8

A joint venture(s)/alliance(s)/pool(s)

30 per cent

A merger(s) or acquisition(s) Additional aircraft

Development of new geographical markets Development of new market sectors

Increased workforce numbers or skills Infrastructure improvements Technological improvements Other

Additional aircraft is seen as the optimal investment opportunity currently for the aviation industry by almost a third of respondents. This is not surprising, considering the almost universally held belief that passenger numbers and freight volumes will increase over the next five years. Opportunities for consolidation are also highlighted, with respondents favouring joint ventures, alliances and pools over mergers and acquisitions. While consolidation is seen by a large minority of respondents as presenting the aviation industry with the best investment opportunity, respondents have highlighted increased scrutiny by competition authorities and the regulation of competition and barriers to entry when asked which regulatory developments have had an impact on aviation. North America is seen as the market offering the best investment opportunities over the next two to five


years, by 30 per cent of respondents (up from 9 per cent in 2014). China and south-east Asia are also expected to offer attractive opportunities, both selected by 28 per cent of respondents (and up from 16 per cent and 11 per cent respectively in 2014). Despite the concerns around competition law, consolidation is expected to reshape the industry over the next five years. 40 per cent of respondents believe that the larger participants will become more dominant and 25 per cent believe that the greatest change will be increased joint venture, alliances and pooling activity.


Question 06

Which countries/regions offer the best investment opportunities for the aviation industry over the next two to five years? Brazil

1018+158283+100818+ 23303+0 28+3105+183

Australia and New Zealand

30 per cent

Central and South America (other than Brazil) Central Asia China Colombia Eastern Europe Egypt India Indonesia Japan

Middle East and North Africa (excluding Egypt) North America Mexico Myanmar Russia South Africa

Southeast Asia (excluding Indonesia, Myanmar and Vietnam) South Korea Sub-Saharan Africa Turkey Vietnam Western Europe Other


Transport survey

Question 07

What will be the most significant change to the aviation industry over the next five years?

10+25+37405H 3

5

10

25

40

3

7

7

Availability of new funding sources Increased joint venture/alliance/pooling activity More start-up businesses by people new to the sector More start-up businesses as subsidiaries of existing participants in the sector Operators will be become more specialised The larger participants will become more dominant The withdrawal of established participants Other

An increased focus on Asia has highlighted the risk of a slowdown in the economies of the emerging markets. A third of respondents believe this presents the greatest threat to the aviation industry over the next five years. Twenty-three per cent point to geopolitical events outside the Eurozone and a fifth highlight an increase in terrorism. A rise in interest rates and funding costs is viewed as being of far less concern, cited by just 3 per cent (compared with 14 per cent of rail respondents and 12 per cent from the shipping industry). Respondents return to the theme of competition law once again when asked to identify the greatest challenge to the operational efficiency of the aviation industry, with 15 per cent citing state intervention creating an uneven playing field. Of greater concern, however, is supply and demand imbalances.


General regulatory controls, access to and inadequate infrastructure, and a lack of suitably qualified people are also identified as posing obstacles to the operational efficiency of the industry. While respondents point to competition law as having had the biggest impact on the aviation industry, followed by increased environmental regulation and the introduction of new and extended economic sanctions, a significant proportion believe that the way regulation is enacted has had the greatest consequences for the industry. When asked which of the regulatory developments of the past ten years have had most impact on the aviation industry, 30 per cent cited uncertainty around the application and enforcement of new and existing laws.


Question 08

What do you see as the greatest threat to the aviation industry over the next five years?

33+7+2232015H 15

33

20

An emerging market slow-down Continued political and economic uncertainty within the Eurozone Geopolitical events outside the Eurozone A rise in interest rates or funding costs A rise in terrorism Other

7

3

22

Question 09

What is the greatest challenge to the operational efficiency of the aviation industry?

100+813105+01526+3

Access to infrastructure (e.g. access to third party landing slots) Emission controls Fuel availability and cost General regulatory controls Inadequate infrastructure

26 per cent

Intermodal or logistical inefficiencies Lack of competition Lack of suitably qualified people

State intervention creating an uneven playing field

Supply and demand imbalances (e.g. overcapacity) Other


Transport survey

Question 10

Which regulatory developments have had the greatest impact on the aviation industry?

17+15+1713308H 8

17

30

15

13

17

Increased scrutiny by competition authorities The regulation of competition/barriers to entry The introduction of anti-bribery and corruption laws The introduction of increased environmental regulation The introduction of new and extended economic sanctions Uncertainty as to the application/enforcement of new and/or existing regulations Other

Investment in infrastructure is the form of government support viewed as most helpful to the aviation industry, in common with respondents from the rail and shipping industries. This is followed closely by the lowering of passenger and fuel taxes, and deregulation. While 51 per cent of respondents believe that infrastructure investment should focus on airports, 44 per cent take the view that investment should address supply chain bottlenecks via investment in a combination of road, rail, ports and airports.



Question 11

Which forms of government support would help the aviation industry most?

4530+ 1328+ 5855+ 80+

58 per cent

Deregulation Enacting the Cape Town Convention Fiscal incentives

Greater transparency in the application and enforcement of existing and proposed regulations Infrastructure investment Lowering passenger and fuel taxes Removal of sanctions State aid

Question 12

What areas of infrastructure investment do you consider most crucial for the aviation industry?

44+50+3H 2 2

52

44

A combination of rail/road/airports to fix supply chain bottlenecks Airports Ports Rail Road Other


Transport survey

Question 13

What will be the primary source of funding for the aviation industry over the next two years?

2015 2014 2013 2012 2010 2009

Shareholders/equity

Off balance sheet finance

Islamic finance

Government support

Private equity

Hedge funds

Export credit

Capital markets/bonds

Retained earnings

Bank debt

Sovereign wealth funds

Other sources

Respondents indicate that the aviation industry will draw on a range of funding sources over the next two years. Twenty-seven per cent expect capital markets and bonds to be the primary source of funding for the industry, followed by 23 per cent who expect it to be bank funding – indicating a marked rise in interest in capital markets


and bonds and bank debt since the publication of our first survey in 2009. Operating lessors are also seen as a key resource by 22 per cent, by freeing up capital that would have otherwise been allocated for the acquisition of aircraft.


Question 14

What will form the most important part of aviation businesses’ strategy over the next 12 months?

2015 2014 2013 2012 2010 2009

Takeover or merger

Retrenchment

Strategic acquisitions

Enlargement of global footprint

Strategic alliances/joint ventures/pools

Enlargement of product offering/R&D

Raising equity and/or debt

Ordering of new aircraft

Strategic disposal of non-core assets

Reallocating existing capacity from stagnant to growth sectors/clients

Respondents are split over what will form the most important part of aviation businesses’ strategy over the next year. Twenty per cent believe that aviation businesses will refocus their strategy by re-allocating existing capacity from stagnant to growth sectors and clients; 19 per cent expect them to concentrate

on raising equity and debt; and 17 per cent on ordering new aircraft. With a widely anticipated rise in passenger numbers and freight volumes, respondents indicate that securing finance and adequate capacity will be key for the aviation industry.


Section 02

Section 02: Rail

Question 01

Are current market conditions generally positive for the rail industry?

91+9+S YES

91% 9% NO

The rail industry is the most optimistic industry within the transport sector. Ninety-one per cent of rail respondents report that current market conditions are positive for the industry. Respondents report that the industry is being buoyed by the availability of funding for investment and growth, followed by the emergence of new opportunities. An anticipated return to stability in key markets and improvements in infrastructure are also having a positive impact. The small proportion of respondents who do not believe current market conditions are positive for the rail industry point to global economic uncertainty and reduced activity in key markets.

Most respondents believe that over the next five years passenger numbers and freight volumes will rise, fares and freights will increase, and there will be an upturn in investment in infrastructure. Respondents are divided, however, over whether the number of routes and services offered will increase or remain static. They hold widely divergent views over whether the allocation of available funds to investment rather than operating costs will increase, remain the same, or fall over the same period.


Transport survey

Question 02


10+40+251015H 15

10

10

40

25

An anticipated return to economic stability in key markets Funding for investment and/or growth is available New opportunities are emerging Reduced competition The reduction in the oil price The reduction in fuel costs The impact of infrastructure improvements The impact of technological improvements Other

Question 03


50+50+H 50

50


Global economic uncertainty Global political uncertainty Governmental operational restrictions (e.g. regulatory/trade barriers) Lack of funding Overcapacity Reduced activity in key markets The enforcement by creditors on debt obligations The impact of technological improvements The reduction in the oil price Other

Section 02: Rail

Question 04

What do you think will happen over the next five years in the rail industry? Rise

Stay the same

Fall

59+32+9w 59+27+14w 86+14+w 41+59+w 45+41+14w 9

32

Fares/freights

59

14

27


59

14


86

41

59


14

45


41


Transport survey

Question 05

What do you view as the optimal investment opportunity currently for the rail industry?

5+290+ 4319+3


43 per cent

A merger(s) or acquisition(s) Additional rolling stock



Infrastructure improvements, followed by additional rolling stock and technological advancements are viewed by respondents as the optimal investment opportunities for rail. Few respondents from the rail industry favour consolidation – in contrast to views held in aviation and shipping – whether through joint ventures, alliances and pools or mergers and acquisitions. No one selected the development of new geographical markets as the optimal investment opportunity for the rail industry currently, but western Europe is seen as the market offering rail the best investment opportunity over the next two to five years. This is followed by China, Australia and New Zealand. New investors are expected to enter the rail industry over the next five years.


When asked what will represent the most significant change to the industry over this period, half of respondents point to the availability of new funding sources, while almost a quarter believe that the greatest change will be the growing dominance of larger participants. No one believes that more start-up businesses by those new to the sector will represent the most significant change to the industry.

Section 02: Rail

Question 06

Which countries/regions offer the best investment opportunities for the rail industry over the next two to five years? Brazil Central and South America (other than Brazil) Central Asia China Colombia Eastern Europe Egypt India Indonesia Japan Middle East and North Africa (excluding Egypt) North America Mexico Myanmar Russia South Africa

140+ 50+ 190+ 100+ 50+ 10+ 5+ 0+0+010+ 05+ 623+


62 per cent



Transport survey

Question 07

What will be the most significant change to the rail industry over the next five years?

50+4+9235H 5

22

50

9

9

5

Availability of new funding sources Increased joint venture/alliance/pooling activity More newly privatised operators More start-up businesses by people new to the sector More start-up businesses as subsidiaries of existing participants in the sector Operators will be become more specialised The larger participants will become more dominant The withdrawal of established participants Other

Almost two-thirds of respondents take the view that western Europe presents the best investment opportunity for rail over the next two to five years. The rail industry will therefore be watching closely developments within the Eurozone. Half of respondents believe that continued political and economic uncertainty within the Eurozone presents the greatest threat to the industry over the next five years. This is followed by 23 per cent who fear an emerging markets slowdown. When asked to identify the greatest challenge to the industry’s operational efficiency, almost a third of respondents believe that state intervention and the creation of an uneven playing field pose the biggest obstacle to rail businesses, together with inadequate infrastructure. Respondents also cite regulatory


controls, a lack of competition and a dearth of suitably qualified people – and yet no one believes investing in the skills and size of their workforce would be the most beneficial investment for their industry. Competition regulation and barriers to entry is identified as the regulatory development that has had the greatest impact on the rail industry. Like respondents from aviation and shipping, however, rather than highlighting any one regulatory development, a considerable proportion of respondents point to the application and enforcement of new and existing regulations as having had the most significant impact on their industry.

Section 02: Rail

Question 08

What do you see as the greatest threat to the rail industry over the next five years?

23+50+9144H 4

14

23

9

An emerging market slow-down Continued political and economic uncertainty within the Eurozone Geopolitical events outside the Eurozone A rise in interest rates or funding costs A rise in terrorism Other

50

Question 09

What is the greatest challenge to the operational efficiency of the rail industry?

50+ 9+ 320+ 9+325+ 0

Access to infrastructure (e.g. access to third-party rail infrastructure) Emission controls Fuel availability and cost General regulatory controls Inadequate infrastructure Intermodal or logistical inefficiencies Lack of competition Lack of suitably qualified people State intervention creating an uneven playing field Supply and demand imbalances (e.g. overcapacity) Other

32 per cent


Transport survey

Question 10

Which regulatory developments have had the greatest impact on the rail industry?

14+38+14295H 5

14

29

38

14


Respondents are almost unanimous in their view that investment in infrastructure would be the most helpful form of government support for the rail industry. Greater transparency in the application and enforcement of existing and proposed regulations, deregulation and fiscal incentives are also identified as ways in which governments could support rail. While 55 per cent of respondents believe that investment in rail infrastructure is most crucial for the rail industry, 41 per cent believe that investment should be aimed at fixing supply chain bottlenecks through improvements in rail, road, ports and airports infrastructure.


Section 02: Rail

Question 11

Which forms of government support would help the rail industry most?

2727+ 41+ 91+ 5+ 0+ 5+

91 per cent

Deregulation Fiscal incentives


Question 12

What areas of infrastructure investment do you consider most crucial for the rail industry?

41+55+4H 4

41

55



Transport survey

Question 13

What will be the primary source of funding for the rail sector over the next two years?

2015 2014 2013 2012 2010 2009

Shareholders/equity


Islamic finance

Government support

Private equity

Hedge funds

Export credit


Retained earnings

Bank debt


The proportion of respondents who expect bank debt to represent the primary source of funding for the rail industry over the next two years is at its highest level since this survey began in 2009. The proportion of respondents who expect capital markets and bonds to form the chief source of finance to the industry has also risen sharply.


Government support, historically the main source of funding for rail, is expected to be its primary source of finance by 22 per cent of respondents

Section 02: Rail

Question 14

What will form the most important part of rail businesses’ strategy over the next 12 months?

2015 2014 2013 2012 2010 2009

Takeover or merger

Retrenchment






Ordering of new rolling stock



(down from 31 per cent last year, indicating that the industry is scaling back its reliance on state funding). Like aviation, respondents are divided over what will form the most important part of rail businesses’ strategy over the next 12 months. Almost a quarter believe ordering new rolling stock will be at the centre of rail strategy, while 22 per cent

believe it will be raising equity and debt, and 19 per cent reallocating existing capacity from stagnant to growth sectors and clients. Despite few respondents favouring consolidation as the optimal investment opportunity for rail over the next two years, 16 per cent expect rail businesses to pursue strategic alliances, joint ventures and pools over the next 12 months.


Section 03

Section 03: Shipping

Question 01

Are current market conditions generally positive for the shipping industry?

33+67+S YES

33% 67% NO

Shipping is the least optimistic industry within the transport sector by a significant margin. Just one third of shipping respondents believe market conditions are positive for their business (compared with 88 per cent of aviation respondents and 91 per cent from the rail industry). Sentiment in the shipping industry appears to have fallen sharply over the past year, when 69 per cent of respondents (in 2014) reported that market conditions were generally positive. This despondency can be attributed principally to overcapacity and new shipbuilding orders, which has affected the industry since the onset of the global financial crisis in 2008. This is followed by, to a far lesser extent, global economic uncertainty. Those who believe that current market conditions are positive for the shipping industry point to an anticipated return to economic stability in key markets, the emergence of new opportunities,

and the availability of funding for investment and growth. Respondents are divided over the outlook for the industry over the next five years. While the industry generally appears confident that passenger numbers and freight volumes will increase, just half believe that fares and freights will rise. The picture is similarly mixed when it comes to investment and innovation. A third of respondents believe the allocation of available funds to investment rather than operating costs will increase, while 24 per cent think it will fall. Half anticipate that investment in infrastructure will rise, compared with 39 per cent who believe the level of investment will not change. Similarly, while 45 per cent expect an increase in the number of routes and services offered, 47 per cent believe that this will remain static. Norton Rose Fulbright – July 2015 31

Transport survey

Question 02


26+19+2636107H 6

3

26

10

An anticipated return to economic stability in key markets Funding for investment and/or growth is available New opportunities are emerging

6

Reduced competition

3

The reduction in the oil price

20

26

The reduction in fuel costs The impact of infrastructure improvements The impact of technological improvements Other

Question 03


26+2+62H 1 2 2

26

2 2 2

63

Environmental regulations (e.g. sulphur content regulations Global economic uncertainty Global political uncertainty Governmental operational restrictions (e.g. regulatory/trade barriers) Inadequate infrastructure planning and investment Lack of funding Overcapacity and new shipbuilding orders Reduced activity in key markets The enforcement by creditors on debt obligations The impact of technological improvements The reduction in the oil price Other



Question 04

What do you think will happen over the next five years in the shipping industry? Rise

Stay the same

Fall

50+40+10w 49+39+12w 73+25+2w 45+47+8w 32+44+24w 10

50

40

Fares/freights

12

49

39


2

25

73


8

45

47


24


32

44


Transport survey

Question 05

What do you view as the optimal investment opportunity currently for the shipping industry?

2829+95104+ 6


29 per cent

A merger(s) or acquisition(s) Additional vessels



Respondents indicate that consolidation will emerge as a major theme for the shipping industry. Twenty-nine per cent believe that a merger or acquisition presents the optimal investment opportunity for shipping. A further 28 per cent believe that joint ventures, alliances and pools present an attractive opportunity. Innovation – through the development of new market sectors and new geographical markets – is viewed as significantly less attractive, selected by just 10 per cent and 5 per cent of respondents respectively. China continues to lead the field as the market offering the best investment opportunity over the next two to five years. Interest in China has increased in the past year, selected by 37 per cent of respondents, up from 18 per cent in 2014. Respondents also indicate a


growing interest in India, up from five per cent last year to 31 per cent this year, and south-east Asia, up from 11 per cent to 21 per cent. Other markets that appear increasingly attractive to the shipping industry include North America and western Europe. When asked what they believe will be the most significant change to the shipping industry over the next five years, respondents have returned to the theme of consolidation, with larger participants expected to become more dominant and increased joint venture, alliance and pooling activity anticipated. The availability of new funding sources is also expected to change the shape of the industry in the coming five years.


Question 06

Which countries/regions offer the best investment opportunities for the shipping industry over the next two to five years? Brazil

1114+15637+021+31149+17192+12+2110+3115+3


37 per cent

Central and South America (other than Brazil) Central Asia China Colombia Eastern Europe Egypt India Indonesia Japan

Middle East and North Africa (excluding Egypt) North America Mexico Myanmar Russia South Africa



Transport survey

Question 07

What will be the most significant change to the shipping industry over the next five years?

18+26+373751H 5 1

18

37

26

7

3 3

Availability of new funding sources Increased joint venture/alliance/pooling activity More newly privatised operators More start-up businesses by people new to the sector More start-up businesses as subsidiaries of existing participants in the sector Operators will be become more specialised The larger participants will become more dominant The withdrawal of established participants Other

Respondents indicate a growing interest in investing in Asia’s emerging markets. Inevitably, an emerging market slowdown is viewed as the greatest threat to the shipping industry over the next five years. This is followed by geopolitical events outside the Eurozone and continued political and economic uncertainty within the Eurozone. When asked what presents the greatest challenge to the operational efficiency of the shipping industry, 55 per cent of respondents return to the issue of overcapacity. This is followed by a lack of suitably qualified people, cited by 15 per cent. Despite concerns over recruitment, just 4 per cent view the development of the size and skills of the shipping industry’s workforce as the optimal investment opportunity for the maritime industry.


Of the new regulations implemented by governments around the world in recent years, environmental regulation is cited by respondents as having had the greatest impact on the shipping industry, selected by 49 per cent of respondents. The introduction of new and extended economic sanctions is cited by 14 per cent, while 25 per cent put uncertainty around the application and enforcement of new and existing regulations ahead of any specific regulatory development. Indeed, almost half of respondents believe that greater transparency in the application and enforcement of existing and proposed regulation would be the most helpful form of government support for the shipping industry, with a further 26 per cent citing deregulation.


Question 08

What do you see as the greatest threat to the shipping industry over the next five years?

34+17+29124H 4

4

12

34

An emerging market slow-down Continued political and economic uncertainty within the Eurozone Geopolitical events outside the Eurozone A rise in interest rates or funding costs A rise in terrorism

29

Other

17

Question 09

What is the greatest challenge to the operational efficiency of the shipping industry? Emission controls Fuel availability and cost General regulatory controls Inadequate infrastructure

45+ 27+ 37+ 015+ 255+

Access to infrastructure

55 per cent

Intermodal or logistical inefficiencies Lack of competition Lack of suitably qualified people

State intervention creating an uneven playing field

Supply and demand imbalances (e.g. overcapacity) Other


Transport survey

Question 10

Which regulatory developments have had the greatest impact on the shipping industry?

7+3+2491425H 7

25

14

3

2

49


As in previous years, investment in infrastructure continues to be seen as the most helpful form of support governments can offer the shipping industry. This is closely followed by transparency around regulation and deregulation. The removal of sanctions is also highlighted. Respondents are divided over what form investment in infrastructure should take, with one third of the view that investment should be focused on ports, while two-thirds believe a more integrated approach is required via investment in a combination of rail, road, ports and airports in order to fix supply chain bottlenecks.



Question 11

Which forms of government support would help the shipping industry most?

2625+ 4952+ 1127+ 9 52 per cent

Deregulation Fiscal incentives


Question 12

What areas of infrastructure investment do you consider most crucial for the shipping industry?

66+32+2H 2

32

66



Transport survey

Question 13

What will be the primary source of funding for the shipping sector over the next two years?

2015 2014 2013 2012 2010 2009

Shareholders/equity


Islamic finance

Government support

Private equity

Hedge funds

Export credit


Retained earnings

Bank debt


Other sources

The past six years have seen a continuing shift in how the shipping industry expects to be financed. Over a quarter believes that bank debt will represent the primary source of funding for shipping over the next two years (up from just 14 per cent in 2009). Capital markets, private equity, shareholders and export credit agency funding are all highlighted by


respondents, as the shipping industry continues to seek finance from a broad range of sources. Consolidation is expected to form the most important part of shipping businesses’ strategies over the next year,


Question 14

What will form the most important part of shipping businesses’ strategy over the next 12 months?

2015 2014 2013 2012 2010 2009

Takeover or merger

Retrenchment






Ordering of new vessels



in the form of joint ventures, alliances and pool and mergers and acquisitions. While a significant proportion of respondents expect shipping companies to refocus their businesses either through the disposal of non-core assets or by reallocating existing capacity from stagnant to growth sectors and clients, just 5 per cent of respondents anticipate retrenchment, despite the industry’s concern over current market conditions.


Transport survey

Methodology The survey was sent to people engaged in the aviation, rail and shipping industries and distributed using our own contacts. The 157 respondents include owner operators, financial institutions, professional advisers, manufacturers and members of government organisations and transport authorities. The survey was open for responses during the period February to March 2015. The 2009 and 2010 surveys were undertaken during the third quarter. Subsequent surveys were undertaken during the fourth and first quarters; consequently a report was not published during 2011.

26+14+60K 24+12+8911213187K Breakdown of industry

26

60

Aviation Rail Shipping

14

Breakdown of type of business

2

7

24

18

3

3

12

1

2

11


8

9

Financier Financial adviser Lessor Insurance Owner operator Other carrier Infrastructure (construction or maintenance) Builder or manufacturer Government or transport authority Professional services Analyst/economist Other

Contacts

Contacts For further information, please contact: Harry Theochari Global head of transport Tel +44 20 7444 3648

[email protected]

Africa

Australia

United States

Andrew Robinson Head of transport, Africa Tel +27 31 582 5630

Ernest van Buuren Head of transport, Australia Tel +61 7 3414 2276

James Tussing Head of transport, United States Tel +1 212 318 3024

[email protected]

[email protected]

Asia

Canada

Gervais Green Head of transport, Asia Tel +65 6309 5326

Richard L. Desgagnés Head of transport, Canada Tel +1 514 847 4431

[email protected]

[email protected]

[email protected]


Transport survey

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50+

Austin

New York

Jakarta

Dallas

Pittsburgh-Southpointe

Shanghai

Middle East

Denver

St Louis

Singapore

Abu Dhabi

Houston

San Antonio

Tokyo

Bahrain

Key industry strengths

Los Angeles

Washington DC

Financial institutions

Minneapolis

1

Dubai Australia

Energy

Riyadh2

Brisbane

Infrastructure, mining and commodities

Canada

Melbourne

Central Asia

Transport

Calgary

Québec

Perth

Almaty

Montréal

Toronto

Sydney

Technology and innovation Life sciences and healthcare

Ottawa


1 Susandarini & Partners in association with Norton Rose Fulbright Australia 2 Mohammed Al-Ghamdi Law Firm in association with Norton Rose Fulbright US LLP 3 Alliances

Transport market experience

Transport market experience Our transport lawyers have long been deeply engaged in advising the aviation, rail and shipping industries across the full spectrum of legal matters. With over 350 transport lawyers worldwide, we pride ourselves on being one of the world’s leading transport practices.

Top tier rankings Transport: Australia Legal 500 2015

Shipping Finance Chambers Global 2016

Transportation, Canada Chambers Global 2016

Shipping: Finance Chambers Asia-Pacific 2015

Transportation: Rail & Aviation Asset Finance, Germany Chambers Europe 2016

Shipping, Australia Chambers Asia-Pacific, 2015

Transportation: Aviation: Finance, France Chambers Europe 2016 Aviation finance: France Legal 500 2015

Transportation: Shipping: Finance, France Chambers Europe 2016 Shipping (International Firms), Greece Chambers Europe 2016

Asset finance: Aviation Finance, UK-wide Chambers UK 2015

Shipping: Finance (International Firms), Greece Chambers Europe 2016

Rail Legal 500 2015

Asset Finance: Shipping Finance, UK-wide Chambers UK 2015

Transport: Rail: Rolling Stock, UK-wide Chambers UK 2015

Awards Shipping Law Firm of the Year Global Transport Finance, 2013 and 2014 Export Credit Deal of the Year South America Deal of the Year Tax Lease Deal of the Year Airfinance Journal, 2015

Leasing – West Deal of the Year Restructuring Deal of the Year Securitisation Deal of the Year Marine Money, 2014 ECA Deal of the Year Marine Money Offshore, 2014

Aviation Deal of the Year Latin America Aircraft Debt Deal of the Year Global Transport Finance, 2014


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