In this issue we examine how the Covid-19 virus has affected the Shipping Industry, and we give our predictions on the shipping market prospects in the aftermath of the Virus outbreak.
“Shipping, in post-Covid-19 times”
Rightfully, humanity is prioritizing dealing with the Coronavirus , leaving all major economic activities at almost a halt, which is a major hit for all industries.
While we are all adapting to a new way of living and working, the questions is everyone’s mind are “ how long will this last?” , and “what will the world look like after this?”.
BlackRock Chief Executive Officer Larry Fink predicted that the US economy will eventually recover from the coronavirus outbreak, though he said the crisis will reshape investor psychology, business practices and consumer habits.
Goldman Sachs Group Inc. see a mainly short-term hit to global markets, expecting a strong rebound in the third quarter.
As per Bloomberg, China’s policy makers and a senior central bank official are claiming that the Chinese economy will have a quick full resumption of activity and rapid economic rebound from the Coronavirus, expressing optimism regarding China’s outlook.
Could the light at the end of the tunnel be visible sooner rather than later? It is evident that the world will be re-shaped in the aftermath of Covid-19, whether the virus was responsible for the whole turmoil, or not.
Trade will be in the forefront of this transition, and so will shipping.
Analysts agree that in order to “revive” their economies all countries will have to strengthen their strategic resources of import and export.
The only way to move goods between countries in large quantities is via Seaborne Transport. In normal times, 90% of global trade moves by sea.
Please note the chart below, showing Trade as dependent on domestic food supply, per country. In efforts to revitalize their economies, countries will ensure that these trade routes , not only return to normal, but also, make up for “lost time”.
Similarly, countries whose industries depend on importing raw materials will increase their imports in order to boost production, and follow by an increase in export to assist their economies. After the the 2008 crisis, there was a “v shaped” effect on the Industrial production in the Atlantic and Pacific basins. We expect a similar effect to be recorded by the end of 2020/ beginning 2021.
Shipping as a whole should benefit from the rebound from the crisis
as pent-up demand boosts activity in all sectors.
The signs are already there. The US Government has approved a deferral of tariff payment by some months, assisting seaborne trade. Calls of ships in Chinese ports are back to pre-Covid 19 numbers.
The Clarksea Index is a rate monitor of shipping, covering all the main ship sectors , Dry Bulk, Tanker and Container and shows the average earnings in $/day of the whole fleet ,weighted by the number of ships in each of the sectors. It is produced by Clarkson Shipping Research (www.clarksons.net).
This week the ClarkSea Index is up 6% w-o-w to $23,055/day, with the average in the year to date up 46% y-o-y.
Focusing specifically on Dry Bulk Ships, we have to consider the Baltic Dry Index ( “BDI”) which is a daily indicator of concluded activity in all Dry Bulk ship sectors , Capesize, Panamax, Supramax, and Handysize.
The BDI has recorded that the bottom for all Dry Bulk indices was in early February. Since then, these sectors (despite the worldwide spread of the Coronavirus) are on a continuous upward movement. Specifically the index for the Capesize ships ( that carry mainly iron ore and coal) has recorded an average weekly increase of 150% in the last few weeks ( although admittedly commencing from a low stating point). The daily time charter average ( earnings per day/ per ship size – in US$) has also increased in most Dry Bulk Ship sizes.
On the supply side, the expected deliveries newly built ships are at the best position they have been for the last 3 years. Year to date fleet growth of 1.1% in the tanker sector, 0.9% in the bulkcarrier sector and just 0.3% in the containership segment.
The current situation has of course seized the demolition activity. Upon resumption of ship demolition, the fleet growth outlook will be even better.
Our opinion is that shipping will be the spearhead of the economic recovery , in the post Coronavirus financial world.
In the current economic environment, shipping is a sensible, asset based investment, with the demand side having a positive medium term outlook, and the supply rapidly balancing.
Shipping is an asset class worth looking into.
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