14-04-2021 There may be pitfalls ahead but this recovery doesn’t feel like 2008, By Terry Macalister, TradeWinds
Shipping has enjoyed the best three months of business for 13 years, with soaring rates and a bounceback in world trade. This exhilarating performance — as measured by Clarksons Research — appears to bring the industry back to the golden days that ended in 2008. That year, the financial crash hit. The US and then the world woke up to the risks of a reckless lending binge and over-exuberant stock markets. That pile-up led to a nuclear winter of bankruptcies, state bailouts and ferocious austerity programmes to rebuild public finances.
So, are we about to push the global economy off a cliff again, in a similar state of overexcitement? Clearly not. Some people would definitely argue that record stock market levels in recent months are not justified, but conditions nowadays generally are quite different. The strong reasons for optimism come after a dreadful period of Covid-induced lockdowns, trade downturns and business failures. But, as we know, the wider traumas of 2020 that drove oil prices to zero had a mixed impact on shipping. Global trade dropped by between 4% and 5% — depending on whom you ask — but freight rates, as measured by Clarksons, were down only 2% last year.
The cruise industry — not counted in the ClarkSea Index — was devastated and offshore shipping mauled. But tankers had a wonderful year as vessels were snapped up for storage as well as trading dirt-cheap crude. The container industry made a fortune by holding back capacity and seeing freight rates soar. Dry bulk was miserable as the China growth machine stuttered in the face of the pandemic. But the first three months of 2021 were tremendously good, according to the ClarkSea Index, which measures tanker, bulker, containership and gas carrier earnings. The average freight rate price per day to 31 March was $17,461, which is strong, but only half the $34,035 recorded in 2008. And, even when banks such as Lehman Brothers began to topple 13 years ago, shipping freight rates were not far short of $16,000 by the end of 2008.
The current “boom” in the index has been driven not just by trade levels recovering after the worst of Covid. Earnings have also increased due to logistical breakdown caused by port and canal congestion as the world rapidly restocks. Since the end of March, the forward momentum has increased, although it began to falter slightly last week. The tanker market is now in the doldrums, with over-tonnaging in many sectors and ING Bank predicting more gloom. However, a bright spot could come from the renewal of talks between the US and Iran on the collapsed nuclear deal. US President Joe Biden has signalled his desire to see a new agreement, which could end sanctions and open the way to more Iranian oil exports. Gibson Shipbrokers has estimated this could bring work potentially for 45 VLCCs and suezmax tankers. Equally, an incident at the Natanz nuclear facility near Tehran last weekend highlighted the dangers of changing political ground rules in the Middle East. And oil demand remains fragile: Virgin Atlantic airline expects business travel to remain 20% lower for the next two years than it was pre-Covid.
Dry bulk is going through a much better period, with the Baltic Dry Index up at 2,145 points, driven by strong capesize interest. Chinese imports of coal and iron ore for steel-making should drive the way for the rest of the year. Shipping stocks on Wall Street have risen by almost 40% in the first quarter, helped by a wider market confidence on the back of a huge US public spending package and the prospect of further low interest rates.
Israeli containership operator Zim, whose shares had a catastrophic first day of public trading at the end of January, has seen its market value double. It is now worth $3.5bn. Let us stick to that as a positive pointer to the future.