The shipping markets have had to navigate even more turbulent waters so far in 2022, than in the past couple of years, of COVID and supply chain disruptions. In its latest weekly report, shipbroker Allied Shipbroking said that “despite having gone through 2 years of COVID-19 lockdowns and supply chain disruptions, shipping markets have found 2022 much more difficult to navigate. The year so far has been fairly volatile, even by recent standards, while as we slowly reach towards the end of Q2, this volatility in global markets has still not eased. Yet despite all this turbulence, for the time being the majority of shipping market have not only managed to hold their bullish ground, but in some cases even managed to find support for a strong recovery (such in the case of tankers). This has of course brought with it a renewed sense of optimism, the likes of which we haven’t seen for more than a decade”.
According to Mr. George Lazaridis, Allied’s Head of Research & Valuations, “across many shipping sectors, average earnings are holding at decade high levels, while renewed interest for investments and newbuilding orders (albeit these have in their majority centered around the Containership and Gas carrier markets for now) has elevated SnP market transactions to similar highs. Yet amidst all this high optimism, the global economy seems to be showing signs of strain and buckling under the pressure. Since the second half of 2021, economist have been trying to grapple with how best to fight off the rising inflation that had accumulated during the “COVID years”.
By that time, it was already starting to become evident that it would not subside quickly nor was it only a temporary effect as part of the disruptions being noted on supply chains. The majority of the main industrial commodities had already managed to upkeep most of their price gains, passing on their inflation down the supply chain, while in the case of energy commodities such as coal and oil, they were in a perfect state to tip off into an even grander “energy shock” such as the one that eventually transpired from late February onwards as the situation in Ukraine started to escalate”.
Lazaridis added that “the inflationary shocks that have been noted up to now seem to still be well countered by strong demand and consumption levels fueled by the massive loosening of monetary policy in the West as well as the disproportionate amount of savings most consumers in the US and Europe had amassed during their respective lockdowns. This pent-up demand however has an end date and can’t keep the global economy in balance for perpetuity. At the same time, it is worth pointing out that it’s the less developed economies that are under the biggest threat at this point and where most of the attention should be focused. Given the constant battle they have to undertake against the increasing prices and shortages on key food and energy commodities, they are on a very precarious balance that can’t last much longer.
If these economic and trading partners were to falter on their obligations, we would surely see a domino effect unfold. Shipping markets however are, as of yet, far from negatively affected by all of this up to this point. The bolstered demand and longer tonne-miles that emerged from all these disruptions have benefited the majority of sectors. At the same time there is a sense of optimism that is based on the fact that for sectors such as that of dry bulkers and tankers, their orderbook stands at historically low levels and seems to still be dropping, leaving as such markets with very limited risk of a supply glut in the making. As such, one would expect that they are primed to benefit extremely well if demand were to make a sharp rise, but also capable to better manage and self-correct in the case that demand starts to slump. The crucial question in regard to the latter risk however, is to what extent?”, Allied’s analyst concluded.