This at least is predictable: we start the new year with ambition and enthusiasm for new business with fresh energy only to be kicked in the teeth after a couple of weeks. For dry bulk shipping, what makes it worse is that we all expected 2022 to be a great year. True, most of us thought that January was going to be soft, but there is increasingly anxiety in the voices of those that question whether this is temporary or something more significant. The fluctuations of previous years’ freight market indices will be pored over, as people reassure each other than this is normal, it will blow over, and we should just cross our fingers and hold our noses, and everything will turn out ok.

 

For me, as a broker, I am fairly relaxed. I like these times where there are different opinions from buyers and sellers, and where none are ‘provable’ in any real sense. So here are a few of the different opinions I have heard this week.

 

It’s normal at this time of the year

This should be filed in the same drawer as “fourth quarter rally”, “Japanese owners have to sell before the end of their fiscal year” and “Greek owners will be quiet over the summer.” None of these are true, but because it has a ring of truth, or at least sounds plausible, then it can be persuasive.

 

Things will be better after Chinese New Year, or the Beijing Winter Olympics, or Ash Wednesday, or Clean Monday, or whatever

Again this has the ring of truth, because we know when these things are going to happen, and they give us a definite date as to when the worst is over. But I am old enough to remember people saying in August 2008 that the freight market was falling because of the summer, the Beijing Olympics, the Para-Olympics, and things would all get back to normal soon, and well they might have done had not Lehman Brothers collapsed and the end of world happened very shortly after. Until it didn’t.

 

COVID is still making life tough, particularly in China

Yes, China’s zero tolerance policy (and not just with COVID) makes port efficiency erratic at best, and unpredictable at worst, but COVID is not really the cause of our difficulties. COVID is the cause of our personal difficulties however, and it restricts our movement and our freedom to get of the house/city/country and have fun. But COVID, or rather the restrictions in place to try is probably helping the dry market by making things a little less efficient in ports and tying up tonnage a bit longer.

 

Omicron is not as bad as was thought, and we will soon be at the end of COVID restrictions

On this one many hopes rest, not just the dry bulk market. Again this is fairly easy to visualise: once released from our homes we can go out and travel, and party, and spend, and attend mass events without fear of being infected – by COVID at least – or even if we are, it will just be like a bad flu, or a light one, and life will go on. How this will actually affect either the dry bulk market, or any other market (except perhaps condoms, testing kits and conspiracy theories), is never actually specified. Again it should have a positive effect, but whether it does is highly unpredictable.

 

The supply fundamentals are still good

By this, we mean there are fewer and few ships available for chartering as there are not many ships due to come out of the shipyards any time soon. This one has more validity than the others in as much that nothing much can actually change in the short or medium term. However, the ships that exist still have to be employed, and just expecting tonne-mile demand growth to happen is not the same as knowing it will.

 

 

On the flip side of all this, there are the superficially more negative who will say:

 

The freight market has fallen drastically, and ship values should also fall because they don’t reflect the current market

Well it would be nice if that would happen, but if it is questionable whether it will happen, simply because of all the positive assumptions listed above. If you think the market will get better, you will not sell to someone who is pricing ships as if it wouldn’t. And rightly so: if you are buying you are doing so because you think the market is going to be good, not bad, otherwise you would be a seller,

 

China will not be importing as much of everything as it closes off the economy more to the outside world and becomes more self-sufficient

China without imports and exports of materials and goods is impossible, even if some other country comes along and fills the gap. And many people forget than when we talk about trade in general we include services too, not just goods and cargo. China may live with a lower level of economic growth for political reasons, but cannot extricate itself from the global trading system that has been the cause of its’ spectacular economic growth since 1980, and particularly 2001. Not this year anyway.

 

The transition to the green economy will leave ships – particularly those trading in fossil fuels – as stranded assets

Maybe, but not this year. The demand for coal (and oil and gas for that matter) cannot be silenced immediately.

 

The FFA market is tanking, and taking the freight market with it

Oh please. The FFA market is not the future of the freight market, but a market for tradeable opinions. Liquidity in the FFA market shows that buyers and sellers of these products – on two different sides of the “zero sum game” (another phrase to watch out for) agree on a position to hedge another one. It tells us more about the present than the future.

 

 

And so on.

 

What do I think? For now, today, this Friday evening, I think 2022 is going to be good for the dry market. Why? Prices for ships are not falling at the same rate as the freight market, mostly because many owners do not have to sell now, and believe that this lull is temporary. Will I change my mind? Yes, if something causes people to behave differently, and start selling like hell to take some money off the table before it disappears. There is no sign of that at all, not even a whisper.

 

But I am basing my assumptions as an S&P broker, and I believe that investor behaviour in the sale and purchase market gives a unique insight into the future market as a whole. But I would, wouldn’t I? And I – and shipowners themselves – have proven to be wrong in the past, many times. However, I do think it’s a good idea to separate the relevant from the irrelevant, and the causative from the symptom. The freight market is bad now, and as yet there is not a real convincing narrative as to why that is, except the time of year. Until another story comes along, either as a different narrative, or a change in freight market and investor behaviour, a change in numbers, a change in the bid/offer balance, there’s not much more we can do.

Simon Ward