That sound you hear, the flapping of wings, clucking and cleaning of feathers, is a whole bunch of chickens coming home to roost. But I do not wish to browbeat you, or tell you that “I told you so!” Brexit is done, and Mr Trump is about to leave the White House, whether tomorrow, or on the 19th January – either way under a cloud – and we start from here, not last week, or even five years ago.
Looking back over the last unprecedented twelve months, there is much that was not forecast, prominent amongst them the coronavirus. Whilst many, including myself, underestimated the seriousness of the pandemic early on, it was not a ‘Black Swan’ event, and we need to remind ourselves that things were not beyond control. As can be seen around the world, it is not the virus itself, but how governments and authorities – and indeed individuals – choose to deal with the threat and effects of the illnesses caused that matter. In the meantime, the world keeps on turning and for us in shipping, there are other things in play that matter a great deal more.
This is not to say that the coronavirus does not matter. Crew changes, crew welfare and other practical matters, like the supervision of maintenance and dockings, training and career development have all been put on hold. The effects of these will be felt in the future, but for now shipping functions, and functions well. Imagine the world without it. No, that’s right, you can’t.
It is customary for opinionated people like me to try and see into to the future at the beginning of the year. Regular readers will know that I am hesitant to predict anything, but there are things that can be forecast. Not only were many of the bad things happening now predictable, some were inevitable, especially in the world of politics. Wishful thinking is sloppy thinking, and hoping that something may happen because you want it to happen is not a particularly efficient way of planning, either personally or professionally. And if you think I am being too harsh, let me tell you I speak from bitter experience: I have learnt this the hard way.
Nevertheless, after much thought and analysis – that is reading a bit and discussing things with friends – let me share a few things that I think will affect the deepsea shipping markets over the next year.
The world is changing, and changing fast. Everything affects everything else. This is not about who is in the White House, or indeed who is wandering around Capitol Hill in fur hats (or worse), but the tectonic plates of spheres of influence moving and colliding.
Hong Kong is now under PRC control. Active supporters of the democratic movement are being rounded up and being detained. The message for sympathisers is clear: conform or suffer the same fate. And for those in any doubt, it is not just democracy that is being targeted, it is any dissent from the party line. Witness the fate of Jack Ma, poster boy of the Chinese tech industry with an empire that dwarves most in California. He has not been seen since because he criticised the Chinese banking sector. The world’s biggest IPO was pulled. The Party decides.
At least there is no doubt. The Party has decided to stop importing Australian coal. The Party will not allow the WHO investigation into the source of the coronavirus. The Party decides. Expect more of the same.
The election of Joe Biden will not change anything substantial in China, but it will mean more meaningful alliances amongst countries with democratic systems.
Aside from that a more positive note is the continuing détente in the Middle Eastern Gulf countries, and now Qatar is talking again to its neighbours, and Israel is normalising relations too, it should only be a matter of time before Iran can be brought back to the negotiating table. That of course depends on any curve balls that Turkey wants to throw around, and Syria remains an unresolved issue too. Russia’s shadow continues to grow, despite setbacks in the Caucasus and the Baltic, as the US’s recedes. Turkey is more than a local irritant, and getting more desperate. North Korea does not like being ignored, and will want to make its presence felt and soon.
But in the end, it all comes back to China. Hong Kong is a rehearsal, with the PRC testing the world to interfere. The world will not, the world cannot. Taiwan is next.
Energy and Environmentalism
Despite the continual drift away from carbon energy to renewables and green energy, coal, oil and gas will drive the short and medium term health for shipping. Coal is not disappearing any time soon, and while Australia suffers, and China shivers with blackouts, tonne-mile demand for coal is increasing, and so do freight rates from handysizes up to capes, as trade routes are disrupted.
LNG is in demand. Spot prices in Asia reached a record level of $20.705 per million British thermal units on Thursday, four times as much as September. “What has triggered the rally is colder than normal weather in Asia and Europe and a complete lack of availability of LNG tankers while supply outages have really tightened up the market,” according to S&P Global Platts.
Oil has suffered, but the price is creeping up, in part due to production restrictions in Saudi Arabia, but when planes start flying again, and the world gets back to normality, volumes will increase. Tankers should benefit.
Steel prices are booming, both in finished products and scrap, with Bangladeshi demand driving prices up into the high 400’s per ldt. This will lead to increased shipments in iron ore, and scrap, and in finished steel products. The effect of this will benefit dry bulk shipping from top to bottom: the freight market, the secondhand market and the scrap market. With scrap prices for ships now in excess of those prices being paid for further trading, the supply of ships will tighten further.
To say that container shipping has been surprised by its own success in the last few months is something of an understatement. But with the shift of retail activity moving from the high streets to online, this is a trend that looks likely to remain strong, for the medium term at least. At some point however the money – individually, corporately, fiscally, monetarily – will dry up, and spending power will diminish. In the meantime, click away for boom times in containers.
But every silver lining has a cloud, and the cloud over all of us is COVID-19. I wrote last year that after the 2002-2004 SARS outbreak we witnessed the best dry bulk boom ever, or at least this side of the second world war. And after the 1918 Spanish flu outbreak came the roaring twenties. History never repeats itself, but sometimes it rhymes.
I do see similarities between now and 2003, at least for dry cargo. A lack of newbuildings, owners suffering after many years of poor freight rates, and a despair that things will never get better; but they did and how. But past performance is no sign of future performance, and China is – in so many ways – a different beast altogether. India, that sleeping giant, doesn’t look as though it will rouse itself significantly any time soon. Aside from China and India, the rest of the world remains in damage limitation mode at best, and underneath the COVID cloud patterns a long time in the making make their sinister progress.
But as far as shipping goes, hold on to your hats. Whether the coming good times, which I genuinely expect, will be anything other than short-lived I cannot say. But having lived in shipping for over thirty years, my gut feeling is that things are going to be good. Whether or not you trust my ever expanding, lockdown fuelled, gut is another thing altogether. But putting together increasing tonne-mile demand, the demand for ships themselves – borne out by an active sale and purchase sector in all sectors – as well as a tightening supply, then, for now at least, things indeed can only get better for shipping. For all the other stuff, well we can only watch and wait.