Shipping investors have to cope with violent swings of sentiment. Today tankers are enjoying a precarious euphoria, whilst bulkers embrace manic depression. A year ago it was the other way round. These sentiment swings are bad enough, but when you factor in the future things get even worse. Last week’s Economist leader was entitled “Watch out…it’s only a matter of time before the next recession strikes”.
Reality Or Disorder?
So, the real concern for investors is what lies ahead. Somehow they must separate reality from sentiment and today that’s tricky. The Economist thinks that while the world economy is in better shape, governments and central banks have stretched their policy instruments to such an extent that there is not much left to deal with another crisis. With interest rates hovering around zero there is little scope for dealing with future problems. But, says the Economist “sooner or later, policymakers will face another downturn”.
The Parallel In Shipping
Shipping investors face much the same quandary. Seaborne trade has recently been commendably positive, growing by 4.2% in 2012, 3.4% in 2013, and 3.3% in 2014. Estimates for 2015 suggest around 3% (though it has to be said there are plenty of question marks, so this could be subject to some downside). With heavy scrapping and fewer deliveries, the world fleet looks set to have grown by around 1.5% in the first half of 2015. So supply may be growing roughly at the same rate as demand. But many of the least attractive ships have been scrapped and shipyard output is edging up, so any sort of trade slump would be difficult to manage.
Spiky Sea Trade
Since 1970 there have been seven slumps in world seaborne trade, each initially triggered by a crisis in the world economy. The first three slumps in 1975, 1980-82 and 1986-87 were due to the oil crises of the 1970s. Between 1979 and 1985, crude oil trade fell by one third. The next four were mainly financial. No. 4 was the financial crisis in the US. No. 5 was the Asia Crisis and No. 6 was the “dot-com” crisis when overheated IT stock values collapsed. No. 7 was the 2007-08 Credit Crunch.
That works out to a crisis close to every 6.5 years. It is now 6.5 years since the Lehman Brothers collapse, so the Economist’s case for caution makes sense. And shipping faces some additional structural risk. China now imports over 2 billion tonnes of cargo and coal and ore trade may be peaking out. Meanwhile, energy (over 40% of seaborne trade) is back on the agenda, with the phasing out of fossil fuels under discussion and plenty of energy saving technology in the pipeline.
On The Beach
So there you have it. Like waves at sea, crises are just part of shipping scenery. Serious seafarers take them in their stride, and smart shipowners make sure their companies can navigate whatever big waves they meet. But it’s never easy, and the holidays provide a good time to reflect on the balance of shipping sentiment and reality, ready for whatever the Autumn brings. Have a nice day.