December 03, 2015

Hot water

By now, the hope at the end of last year that shipping would see some kind of revival in 2015 has given way to near despair. That hope was misplaced anyway; the despair today may not be.

The overwhelming consensus at present seems to be that the global economy is still struggling badly and will continue to do so for some time. Maurice Obstfeld of the IMF put it mildly, I thought, when he said, "Six years after the world economy emerged from its broadest and deepest post-war recession, the holy grail of robust and synchronised global expansion remains elusive." We are in an era where the clamorous predictions of global trade doubling in the next fifteen years are starting to sound increasingly like a pipe dream. Damisa Moyo warned the Danish Maritime Forum last month that the pre-2007 type of economic growth ‘will never return’. Strong words.  I would have used may instead of will, but I am in agreement with some other warnings from the experienced economist, especially her opinion that economies are going to be severely disrupted because of erosion of jobs and that social unrest and terrorism will increase as a result of continuing global economic woes and demographics in both developing and developed economies.

What is worse is that the pumping in of money after the financial crisis a few years ago- the euphemistically named quantitative easing- has created a predictably bizarre situation: stockmakerts are doing relatively well even as industry is doing pretty badly. Meanwhile, the economy is going nowhere, demand has collapsed (see what is happening with commodities) and interest rates are close to zero in much of the developed world. 

Something has to give, and there will be panic when it does.

Shipping has its own particular woes, the biggest one being overcapacity. It has another problem not often spoken about openly- less than competent leadership. It is amazing, for example, that industry leaders in the container business- undoubtedly hit the hardest today- could not read the writing on the wall two years ago when they were ordering megaships like there was no tomorrow. Unsurprisingly, Maersk has reported terrible quarterly results, with profits down an unbelievable 61 percent and revenue down fifteen. Analysts are warning that container ship lay-ups, which have already reached their highest levels in five years, will accelerate and may even reach the high levels of 2009, if you ask me. There are years to go before the excess capacity in this segment will be absorbed. 

The dry sector is hardly doing better, with the Baltic Dry Index down to its lowest levels ever. It has collapsed a staggering 95 percent from its all-time high of 11,793 (in 2008) to, believe it or not, sub 500 levels. The drying up of Chinese demand for iron ore and coal that was predictable five years ago was ignored. In any case, I fear that the commodity meltdown is far from over, and prices and movements may stagnate for years. 

The two big reasons shipping is not completely on its knees today is because a) bunker rates are at record laws and b) large crude oil tankers have done pretty well this year. 

There is a question mark over these tankers continuing to do well, though. Speculators and traders bought oil when prices were falling, but the tankers that were used- essentially floating storage- are already piling up in places like Singapore and  the US Gulf. Because, you see, there are few buyers for the oil. The mini-boom in the crude tanker segment may have given a welcome breather to shipowners, but it may not last indefinitely if speculators do not see quick profits.   
Shipping is, then, today an industry that does not have anything much to cheer about. For my money, it is going to stay that way through the next year or two, at least. I am afraid that we are going to see more blood on the street for a while. 


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