Shipping – So Far – Withstands Negative Impact from Trade and Global Economy Slowdown
According to Allied’s Head of Research & Valuations, Mr. George Lazaridis, “the major issue here is that the U.S. economy is the one that economists are least worried about in terms of the global perspective. Europe and China have proven to be of much bigger concern of late, with the former trying to grapple with a severe energy crisis and the latter tackling the effects of its “zero-COVID” policy which has proved to be very disruptive during this most recent outbreak in COVID cases. For the time being, we have seen minor effects take hold, while most expect the slow down in global economic growth to intensify further over the coming months and some even going as far as mentioning a potential recession at hand.
“If this be the case, then trade in major industrial commodities is going to feel the pain sooner or later. Most feel that we have yet to see markets truly reflect China’s most recent weakening industrial outlook, while given how major a role it plays in most of these commodities, the negative effect is expected to be considerable. For the time being shipping markets have been able to shake off most of this negativity, with rates in the dry bulk market has held up considerably firm (albeit performing at slightly lower levels than what we were seeing during the same time period last year), while the tanker market has even managed to show strong improvement as it rides off the positive tonne-mile gains provided by the most recent supply chain disruptions as part of the crisis in Ukraine. In the case of the dry bulk market, we are still expecting the market to be able to hold off any strong negativity thanks to the restricted growth in the fleet that we experienced over the past 5 years or so”, Mr. Lazaridis noted.
He added that “at the same time the fact that the orderbook has remained at very low levels as well during this time frame ultimately means that it provides a fairly good time window in which a good balance can be maintained (along with comparatively good earnings) even if we were to see a slight slump in global demand. Things are a bit more complicated for the tanker market, with a fair amount of pain having been already dealt with over the past 2 years and all indicators still showing that the most recent improvement could fairly easily evaporate were we to see a strong slowdown in the global economy.
At the same time, the excessively high energy prices prove to be both a positive and a negative factor moving forward. At their current levels, they seem to be allowing more trade arbitrage opportunities and thus amplifying the tonne-mile requirements. Yet if prices stay too hot for too long they could easily overheat the market and cut off a fair share of consumption. This would inevitably lead the market to backtrack to the same conditions it was facing just 1 year back. For the time being it seems as though the market balance is still holding. A fair amount will depend on how governments move to tackle inflation over the coming months and if and when the situation in Ukraine finds some sort of resolution. Given that we have yet to see any major break through having been made in either of these pressing issues right now, it is hard to completely exclude any possible scenario moving forward, even that of a recession”, Allied’s analyst concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide