Will Shipping “Sink or Swim” in a Sluggish Global Economical Environment?
Trying to see the shipping market’s “glass” as “half-full”, shipbrokers are estimating that even under the worst-case scenarios, when it comes to the future growth of the global economy, shipping should manage. In its latest weekly report, shipbroker Allied Shipbroking said that “with 2019 having posted the slowest growth figure in a decade for the global economy according to last week’s report by the UN and with both the UN and IMF having posted significant downward revisions for their projections of economic growth for the year ahead, it looks as though the year will prove to be even more challenging than most would have liked. The 2.3% growth figured posted for 2019 was significantly off the mark from the 3% projection that was given 1 year back, while much off this slowdown has been attributed to slowing domestic investments around the globe, coupled by a series of market protractions brought about by the ensuing trade disputes”.
According to Allied’s, Mr. George Lazaridis, Head of Research & Valuations, “what’s more is that most have expressed fears that a re-escalation of trade tensions, geopolitical tensions or further financial turmoil could lead to a further derailing of the global economy, leveling this year’s growth figure to 1.8% instead of the currently projected 2.5% given by the UN. The IMF has been slightly more bullish, estimating the 2019 figure at around 2.9% while expecting 2020 to reach around 3.3%. Along with the factors mentioned by the UN report, the IMF placed importance on the sharper-than-expected slowdown in India as part of the contraction in credit, while also pointing out to softer conditions in other emerging markets”.
Lazaridis noted that “the most worrying part from the perspective of shipowners from all these figures has been the signs that the world’s second-largest economy, China, has posted its slowest economic growth figure in 29 years. The 6.1% growth posted for 2019 has been primarily attributed to the weak domestic demand currently being faced along with the impact of the bitter trade friction the country has been under with the US. Taking into account the average trade haul generated by these economic growth figures during the past year, this leaves for a fairly worrying sign ahead while even when focusing exclusively on the economic performance of China, which is one of the largest drivers of the world’s dry bulk seaborne trade, it seems as though 2020 will continue to be faced by difficult market conditions”.
Allied’s analyst added that “obviously 2019 also posted some of the most hopeful figures for the dry bulk market, with several freight indices reach decade highs during the early part of the second half of the year. This was in part due to the much-anticipated volume catch-up undertaken by many traders during that time period, something that can be also seen by the fact that the year as a whole did not manage to reach any significant differences in the average freight rates noted compared to their respective averages of 2018 (it is worth mentioning that only the Capesize market noted improved average annual figures for 2019 compared to 2018).
“Yet even under such conditions, the market can still be said to be holding relatively well. On average, freight rates are still holding at “good” levels, while given the current order book and expected newbuilding delivery schedule for the year, it’s hard to see any significant demand-supply imbalance emerge even under the most pessimistic global economic growth figures currently being posted. Given these factors, it looks as though under the most optimistic scenarios 2020 could prove to be an improvement in dry bulk freight rates compared to 2019. Even when taking in the “darker” scenarios in mind, we should be able to hold at close to similar levels to those seen last year, something that would not be seen as a poor performance given what we have seen the past 5 years or so. This, of course, should be taken with a pinch of salt as we find ourselves in a time when geopolitical and other outside market effects could easily turn everything in the market on their head”, Lazaridis concluded.