It is part of a broker’s life to have an opinion about the market: that is where their expertise lies. In my experience some brokers’ opinions are not as solid as they might like to think and change alarmingly quickly; others’ change depending on who they are talking to; others may just simply have a bad memory. But that’s ok, the world is made up of many different people and they all have their place. Some buy and sell far more ships than I do. I like to think that my opinion is consistent enough whatever the circumstances are, until, of course, the circumstances – or facts – force me to change my opinion. And I can of course be wrong sometimes. Indeed, one of the reasons I write this blog is to put down in black and white what I think, and there it is, on the record. I try to avoid ambiguous language (on the one hand, maybe, perhaps, it could), and I think I am fairly outspoken and plain when I have something to say. I think that this is important not just for my integrity, but for my sanity too. An artist may be someone who can hold two opposing viewpoints and still remain fully functional, but when I try to do so, my brain just stops. Maybe the most successful brokers are therefore truly artists, but no one ever employed Michelangelo to make chairs, and the brokers I admire most can be best described as passionate craftsmen, not brilliant sculptors.
I was talking to an old friend of mine this afternoon and he gave me his opinion of the dry bulk market. Whilst I shared his general view – 2021 will be better than 2020 – I did not entirely agree that we were at the point of lift off, and next week’s prices will be firmer than this weeks’. This view however, give or take some more or less enthusiastic hyperbole, seems to be fairly consistent across the people I talk to on a regular basis. But as one of my clients pointed out: unanimity is dangerous. If we are all in agreement, we must be missing something.
I cannot, sadly, see into the future, and I am not sure if I would be comfortable with the knowledge if I could. All the technology, data and Artificial Intelligence in the world in the world cannot predict the future, just as it cannot, as Aristotle pointed out 2,500 years ago, undo the done that has been done. So, in order to sharpen my brain, and relieve the boredom of repeating the same stuff over and over again, this week I will play the devil’s advocate and argue for the complete opposite of what I feel to be the case. The original devil’s advocate was a person appointed by the Catholic Church to argue against the creation of a saint, or the verification of a miracle, but we best understand it as a person who creates debate (and I hope thought) by expressing a contentious or opposite view to the consensus. So here goes:
China Will Stop Importing Raw Materials
Despite the assumption that China has an insatiable appetite for iron ore, coal, grain, mineral ores, and oh, everything, China will if not stop imports entirely, but the growth of volumes imports will decrease, and eventually start to go into reverse. A smaller version of this is experienced every first quarter due to Chinese New Year, and other seasonal factors. There are other factors as well. China wants to reduce trade with Australia, and others, and the post COVID-19 construction boom is slowing as consumers spend more and boost the economy. The number of heavy industrial State Owned Enterprises defaulting on bonds and debts is increasing, showing that China is looking to move away from the ‘build at any cost’ model of economic expansion. Exports are strong, and technology is increasingly dominant in an internalised economy. LNG will become more prominent in energy generation, and in any case domestic coal will be favoured over seaborne coal, to a point at least. Longer term, the shift to renewables will cease dependency on bulk carrier shipments, and the stuff they do import will be more valuable but in smaller quantities. Grain shipments will still be important, but the industrialisation of agriculture and a change in eating habits will increase trade by containers, but not by transferring protein (and moisture) from the Americas to China.
America Is Not Going Back To Normal
The election of Joseph Biden does not mean busines as usual in the world economy. Nothing has fundamentally changed, and the new President will not magically turn the clock back on trade, mainly because China is a different, more threatening beast than it was in 2016. The US economy was already doing very well prior to COVID-19, and it now seems a matter of when, not if, the lockdowns end. There are already huge monetary and fiscal stimuli out there, or in the pipeline. How much of an economic burst can going back to the office stimulate? True travel and tourism, food and entertainment will recover, but there is little in a cinema or supermarket that can improve trade volumes for bulk carriers.
The End of COVID-19 Does Not Mean An Increase In Trade
As we know, the price of commodities does not drive the freight markets directly, if at all, but volumes do. What dry commodities have been denied shipment because of COVID-19? And what dry commodities will be more in demand now that COVID-19 is coming to an end? I cannot think of any, but please enlighten me if you can.
COVID-19 Hurt The Economy
The devastation to the global economy has yet to be felt in the real economy because many of us have been shielded by it. Once the virus goes, the effects will become clearer as monetary and fiscal assistance begins to dry up. The worst, economically speaking, is yet to come.
You will perhaps be relieved to learn that I have run out of arguments, for now at least. For those on the positive side of the street, I can find no arguments that magically alter the number of ships that exist, and the low orderbook, and the lack of future dry bulk orders. Neither can I think of any argument that suggests any decrease in tonne-mile demand, especially if trading arrangements become more fractured, and smaller ships start to do longer voyages.
This is not to say that the arguments I have put forward are not realistic. In writing them, I felt the thrill of a cold shower. We have been perhaps lulled into a false state of complacency by the measures taken to prevent the worst economic damage that the pandemic could have caused, but by simply going back to something approaching normal, something will have to give. Wishful thinking is not enough.
And this is perhaps the key. We cannot make the market improve just by wanting it to, and there are so many different factors driving the demand for shipping, and therefore trade, that it is hard to forecast anything. We want things to be good. There is an end to all this in sight, and good times will come again. But the lockdowns still exist, it is not easy to travel, and we really are getting sick and tired of it.
I still think it’s a good time to buy dry bulk carriers, but not at any price. Each deal has to make sense on its own merits, tactically and strategically. You shouldn’t just buy because prices may get more expensive tomorrow, but because the ship is the right one for you, at the right time. I have been fairly consistent in that opinion for months now, and I am on the record for saying so. This little exercise in advocacy however has proved to me, at least, that there is no need to get carried away too soon, and a bit of wait and see may not be a bad idea. If you want a reason why I’m not the most successful shipbroker in the world, then you have just found it, but as they say, fools rush in where angels fear to tread, and I prefer, on the whole, the better angels of our nature.