Mester Commercial News Feed

Shipping Market Analysis - 17th May

Given that we are now slowly transitioning from a state whereby the problem was a short-term shock over to a fully-fledged macroeconomic problem, many are looking to see how things will transpire in the market moving forward. For the time being, the true impact is but a notional one as we have yet to fully count the economic casualties at hand, while the extent of the damage will take some time to fully unravel.

Beyond this, something that is commonly shared within the shipping industry of late is as to if we will be able to see a recapture of the lost trade and to what extent this will materialize. From the perspective of an optimist, a relatively strong recovery is looking to be a very probable outcome for the near-term. However, taking this over to a market fundamentals approach, we find ourselves asking whether this will it be a short-term correction and straight back to some ‚known normality”, or a transition over to a new market environment? Let’s start with the freight market, where things have been very disappointing for a while now (especially for the Capesize segment).

The step back is tremendous, especially when compared with the past 3 years or so, with returns losing the recovery path momentum and putting an end to a mini upward cycle that had started to emerge since late 2016. The main question for most is whether we are experiencing similar market conditions to those faced back in 2016. While earnings seem very prone at the moment to further downward corrections, the same can’t necessarily be said for asset price levels.

The truth of the matter is that asset prices have been under pressure for a long time now and have already experienced hefty corrections. Yet the current illiquid state of the secondhand market has left for any further corrections to hold only as a notional idea. Certainly, the lack of volumes in transactions is a core culprit of this, however, the price gap between buyers and sellers has also played a key role. Maybe this represents a glimpse of optimism amongst many in the market with respect to their future earnings potential. In many ways we seem to be sailing in ‚unknown” territory, with all parties involved seeking the best strategy to help deal with the situation at hand. Personally, I support the argument of a steep upward momentum in freight returns to take place some point in the upcoming months.

Regardless of the difficulties, disruptions and risks faced in the market, the economy will inevitably move forward. Yet, as time goes by and the bearish period extends ever further into the horizon, there is the risk of this recovery in numbers taking an asymmetrical and ‚artificial” form. This is because of the fact that even if we assume a very strong bullish ‚window” taking place, it won’t be enough to support an adequate percentage of the ‚real economy” within the shipping industry. It will boost the various benchmark indices and shape better average yearly freight returns.

However, it will be narrowed down to participants of a well diversified portfolio in terms of spot and period employments, who can afford to take risks and remain available to potential market shifts, or for units with a rather good ‚time position” for a small number of voyages. All-in-all, to sustain a modicum of bullish sentiment, there needs to be enough fixing activity to cover a significant portion of current losses, but this will be very challenging moving forward.

Thomas Chasapis
Research Analyst

Source: Allied Shipbroking