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2021: What to Expect of the Freight Market?

Shipbrokers are trying to gauge the state of the freight markets, as 2021 is already on course, but with many unknowns. In its latest weekly report, shipbroker Allied Shipbroking said that “with any New Year, start new beginnings and many are already in pursuit of setting off this one on the “right” foot. Now, that we have a clearer picture of the year that just passed, where does that leave us in terms of what to expect for the one ahead? Repetitive as it may be, functioning under a tail-risk regime has its own unique characteristics and traits. Given the multifaceted nature of the risks faced ahead, there are reservations amongst most to prematurely discuss the prospects of any return to “normality”, albeit that at the same time we have many holding great optimism for the 12 months ahead”.

According to Allied’s Research Analyst, Mr. Thomas Chasapis, “what can be said with a greater degree of certainty is that with any end to the pandemic constantly shifted further and further into the future, we may all end up being caught off guard when that moment finally arrives. For the dry bulk sector, 2020 had to a great extent proved to be a step back, especially when looking at the first half and wondering what would have been had the pandemic not shown up at all. However, we should not rush to make any defining conclusions. There were actually many winning “components”. I would start with the strong SnP market during the 2nd half of the year, in terms of activity being noted”.

Chasapis added that “to have a liquid market with relatively bullish trends and healthy buying appetite, given the general state of disarray, is of vital importance and exceeds beyond the short-term positive effects being seen. It has had an intangible (rather not easily quantifiable) influence on the whole dry bulk market, especially in terms of general stability. Some could argue that this is but an after effect of the excessively quiet market that took place at the early part of the pandemic, or even, an asymmetric distribution in transactions that were already set in motion. However, given that asset price levels across different size segments and age groups are on a mean-reverting trajectory (relatively close to their 5-year average figures), a situation that in itself excludes (to a fair degree) any exaggerated speculative attitude, one can actually support the view that the market was in reverting back to a sustainable trend”.

Allied’s analyst added that “despite all this, the same cannot be said in regards to the freight market. There, the pressure was severe during the most part of the year and for most size segments, with very few upward movements. Yet in all of this there is one thing that should definitely not be under looked. We may have seen a relevantly turbulent global economic environment and with many potential downsides to the dynamics of the demand side of this, yet at the same time the development of the fleet experienced but a modest yearly growth of 3.09% (in terms of no. of vessels), with a simultaneous decrease in the orderbook of around 38%. This is a key step forward towards a more balanced long-term demand-supply dynamic that has yet to bear its fruit and should not be taken for granted. All-in-all the coming months will have their own challenges”.

Chasapis concluded that “we have many unknowns, as well as unclear trends. Freight market will be a central piece as always in this “puzzle”. Many will question the -on a year base average- lower earnings. My concern is mostly on how “expensive” those earnings became last year, in terms of the risks being involved (volatility, etc.). Moreover, we mentioned the strong momentum in the SnP market that theoretically portrays a more positive longer-term attitude to the sector. But, in a capital-intensive industry, a good financial climate is also essential. If things take on yet another negative shift and any recovery is further delayed, potential capital difficulties could well trigger a new round of gloom for the market”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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