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Shipping Recovery to Take a Back Seat for the Time Being

The impact of the pandemic’s expansion around the world and its financial implications are about to put a halt to the shipping industry’s three-year recovery process. In its latest weekly report, shipbroker Allied Shipbroking said that “at this point, the Covid-19 pandemic seems to be monopolizing all market (as well as all other) discussions across the world and any market insight without some sort of mention would be a major disconnect with the current reality being faced. As of late, the “eye of the storm” of this pandemic is now firmly over Europe and the US (a very large share of the world’s largest economies), while it seems that we are ever further away from any end in sight right now”.

Source: Allied Shipping Research

According to Mr. Thomas Chasapis, Research Analyst with Allied Shipbroking, “putting the focus back on to the shipping industry, during the 1st quarter of the year the setback noted on the whole of the dry bulk market has been considerable in more ways than one. Just to begin with, it has been the worst quarter noted for more than 3 years now, with most indicators pointing to the fact now that the recovery cycle that has been taking place over the past 3 years may well have come to an abrupt end. More emphatically the any other size segment, it is of note that the Capesize market has seen a close to 80% reduction in its BCI 5TC – 3month average figure as of now, reflecting in its most part, how problematic things have been for this size segment”.

Chasapis added that “in terms of the other major size segments in the dry bulk market, things don’t seem to have been as dramatic in terms of earnings, though we should point out the relative “clampdown” being noted in the second hand market for a while now, underlining the damaged sentiment that is currently being shared amongst most market participants and possibly pointing towards a further downward pressure in freight rates to be in sight in the near-term. At the same time and given that asset price levels (though taking note that we are witnessing limited activity right now) have yet to show any sharp correction, this deterioration in sentiment may well be limited”.

Meanwhile, according to Allied’s analyst, “as to how long this could last remains to be seen, while given the shared opinion that is being expressed right now of a considerable market rally to be noted down the line (later in the year), we may well note a possibility that any such price correction, or at least any significant one, may well never arrive. Given that we are functioning under a tail risk event, things are even harder to “predict”. Yet it is worth noting that any major step back in the global economy would result in an equal or even more severe drop in seaborne trade as well. However, even if total annual traded volumes were to fall, the amassed volume of cargoes that will accrue from the extended period of business disruptions could create an asymmetrical distribution in earnings, that may prove to be enough to shift average annual earnings back to more “optimistic” levels”.

Source: Allied Shipping Research

“In other words, the rebound in the freight market during the latter part of the year could be equally impressive to the drop noted now. On the other hand, it is worth noting that there is a significant unknown as to the timing of this as well as to its extent. Many in the shipping industry are coming face to face now with very difficult decisions for the upcoming period. As things stand they can either take the choice to remove some the risks they hold under these mediocre to poor market conditions being faced, or they could chose to push their credit and cash flow to their limits and take the long shot of a steep upward return they may or may not take place at some point down the line”, Chasapis concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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