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Better days ahead for shipping?

October 7, 2019

Greetings from Cyprus, where today I am moderating a panel session entitled, Are Brighter Days Ahead for Shipping?

 

As any market analyst or data scientist will tell you, the main influence on shipping markets remains global GDP. And, as I have been saying for years, within the global set of GDP data, the main influence remains the twin processes of industrialization and urbanization especially in developing markets. So I’m excited to hear the views of my illustrious panel on what will be the key drivers for the industry in the years to come. Because, let’s face it, it’s been a funny old year so far. Macro fundamentals remain patchy so short-term influences are driving freight rate trends. 

 

For instance, recent manufacturing indices from key US and European markets look dim, with some analysts calling a recession by the end of the year, with two quarters of contraction looking likely. Meanwhile, China’s Purchasing Managers Index showed a straight fifth month of contraction in September at 49.8, marginally up on 49.5 recorded for August. Business leaders cite ongoing uncertainty in US-China trade talks as a key ingredient in slower investment activity. 

 

US importers who have offshored assembly to China to take advantage of low labour rates have already reacted. As we have previously reported, while China-US trade fell by nearly ten per cent in the first half of 2019, ASEAN-US trade grew by nearly eleven per cent. It seems that trans-Pacific supply chains are resilient and flexible, ensuring that continuing US consumer spending growth can rely on a steady stream of imported household goods. At the same time, Chinese domestic sales of consumer goods continue to rise as the Middle Kingdom supports its home economy in the light of harder international trading conditions. 

 

Lower US mortgage rates, down nearly a per cent to an average of around 3.4 per cent in September, no doubt help the US housing market to support demand for consumer durables. Meanwhile 17 million or so new automobile registrations this year testify to ongoing consumer confidence, or at least the ability to find cheap credit deals that - as one pundit put it - may last longer than the brake pads on their new cars. High US employment growth also helps, with over 130,000 jobs added in September, though some point to the effect on this figure of around 20,000 temporary positions with the US Census Bureau gearing up for its next exercise in head-counting.

 

The European Union seems ready to give the UK the boot, with a Hallowe’en exit given anything from a five to a fifty per cent chance of happening, depending on who you ask. Again, business leaders seek certainty so that they can resume planning for whatever future the poitical tarot cards finally decree. 

 

In Asia, developments in Hong Kong continue to offer concern to overseas investors, while the increasingly confident mainland Chinese leadership seems happy to wait-and-see how deep a hole the Lam administration can dig for itself before stepping in to avert chaos, the perpetual goal of all Chinese governments through history. That’s the result of course of a world view that sees chaos perpetually at the gates and the role of the state as to promote harmony, or order as we in the West might put it. Unless of course like Donald Trump you don’t like the current order and keep putting explosives under it. Perhaps the Chinese are taking the long view, hoping for a different interlocutor after next November’s US presidential elections. They might be careful what or who they wish for: both Republican and Democrat foreign and trade policies are in flux and depend on who contests the election.

 

The Take Away 

 

 

With so much macro-economic confusion, predicting shipping markets is even more of a mug’s game than usual.  Therefore I expect we will spend much of this week not talking about politics or macro-economics but about issues much closer to home. For instance, where are the IMO 2020 regulations leading us? Is there a latent demand for newbuildings that can’t be financed by incumbent lenders? Who will take the lead on decarbonization and will the industry as a whole embrace it? Does the increasing regulatory burden combine with ever larger commodity interests to drive corporatization and consolidation among ship owners? I don’t know the answers, but I will report back on the conversations in next week’s Macro Macchiato. 

 

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