Geopolitical Risk: good for shipping?

Is geopolitical risk good for shipping? In the short term, sometimes it is, sometimes spectacularly so. In the long term, almost certainly it is not. While wars, sanctions and trade disruptions can drive sudden spikes in freight rates, sustained political uncertainty corrodes the foundations of global trade, investment, and shipping demand itself.

I was asked by a journalist this week whether increased global political risk is good for shipping.

You often hear that a crisis is “good for shipping”. What people usually mean by this is that freight rates spike on a particular route, or that disruption temporarily soaks up shipping supply. There are plenty of recent examples. Here are three.

• The Red Sea / Houthi attacks.

The effective closure of the Red Sea has forced container ships sailing from Asia to Europe to divert around the Cape of Good Hope, adding an estimated 12 per cent to voyage costs. Liner companies imposed surcharges to cover these costs, briefly reversing a cyclical decline in freight rates. But the effect has been temporary. A tsunami of newbuildings has continued to tilt the supply-demand balance in charterers’ favour, and most analysts expect that a full restoration of the Suez route would quickly push Asia–Med rates lower again.

• China’s ban on Australian coal.

After Canberra requested an inquiry into the origins of Covid-19, China banned imports of Australian coal and switched to Indonesian supply. This boosted demand, particularly for Supramax and Ultramax bulk carriers, for several years.However, the ban was lifted last year, and China’s overall coal imports are now falling. The longer-term benefit to the Pacific Panamax market has largely evaporated.

• The rise of the “shadow fleet”.

The growth of an ageing shadow fleet — some analysts count it as perhaps 20 per cent of the global crude tanker fleet — is often cited as a driver of stronger tanker freight rates. These ships have low utilisation and focus on moving sanctioned Russian, Iranian and (until recently) Venezuelan oil. Many producers, traders and importers seeking to stay aligned with US sanctions have avoided them. That said, I think the dominant driver of firm VLCC rates has been China’s expansion of its Strategic Petroleum Reserve since late 2024, as Beijing has taken advantage of lower oil prices — echoing behaviour last seen in 2015, which preceded the previous VLCC market peak. Suezmax markets, meanwhile, have benefited from Suez Canal disruption and rising oil exports from South America, particularly Guyana and Brazil.

These examples point to a broader problem for market modelling. Geopolitical assumptions tend to sit underneath industry forecasts, rather than being explicit input variables. We assume that trade flows follow WTO rules — but if those rules are suspended or ignored, the forecast simply breaks.

For roughly 30 years after the fall of the Berlin Wall — until the Global Financial Crisis — the guardrails around global policy were relatively stable. Since then, many of them have fallen away.

In 2014, speaking to the Monaco branch of the Propeller Club, I argued that geopolitics would become the main risk to shipping’s prosperity. I pointed to the thousands of new anti-trade laws introduced largely by OECD countries, and to the rise of authoritarian leaders and weak governance in key producing and consuming nations.

Such changes, I said, would increase administrative and regulatory burdens, raise costs for less-favoured operators, and play out unpredictably in shipping markets.

The point is this: when external, unpredictable policy choices reduce the probability that your central planning scenario will hold, business planning gives way to risk management.

Policy is almost impossible to predict, which is why it rarely appears as a variable in market outlooks. Instead, it acts like an on-off switch for exposure to risk.

More policy volatility means greater risk. Greater risk means executives focus less on investment and growth and more on protection and compliance. The result is slower growth, less trade, and weaker long-term shipping demand.

Short-term risk spikes can and do produce short-term freight spikes. After the Abqaiq attacks, VLCC rates briefly surged above $200,000 per day while I was presenting a tanker market outlook to a Greek ship-owning audience. As owners called out rising worldscale numbers in real time — like a game of bingo — we all laughed at how quickly my presentation had been overtaken by events. But the spike was fleeting. The underlying market fundamentals soon reasserted themselves.

So yes, shipping can benefit from geopolitical risk — briefly. But sustained uncertainty depresses investment, constrains trade, and ultimately caps demand growth.

In a deglobalised, partly decarbonised, and less efficiently organised world, goods will move more slowly, over shorter distances, less frequently, and at greater cost. That may support higher charter rates at times. But it will also mean higher opex and capex, heavier regulatory burdens, greater physical risk to ships and seafarers, and fewer genuine opportunities.

We should be careful what we wish for. We may just get it — good and hard.