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Are Geopolitical Conflicts Push Shipping Towards a Golden Era?

Bloomberg
Total Views: 1132
June 7, 2024

(Bloomberg) —

If there was a universal theme at the parties, presentations and meetings in the world’s shipping capital Athens this week, it’s that bad times are good for business.

That’s to say that geopolitical conflicts and doubts about the supply of new ships mean shipowners are bracing for a prolonged earnings boom. 

Andy Dacy, managing director and group head of the global transportation group at JPMorgan Asset Management — whose multi-billion dollar porftolio includes extensive investments in the maritime industry, encapsulated it best.

“Thinking about shipping over the next 10-15 years, one could argue despite the fact that we have these challenges that we are moving into a golden era albeit underpinned by difficult dark things,” he said at a forum organized by Capital Link during the Posidonia shipping week.

The cost of hiring ships has been about a third higher than the average for the last ten years so far in 2024, according to Clarkson Research Services Ltd., a unit of the world’s largest shipbroker, propelled in part by ships sailing thousands of miles extra to avoid attacks in the Red Sea. Similiarly, Russia’s invasion of Ukraine has led to trade dislocations that are forcing oil tankers on far longer voyages than would otherwise be the case.

Speaking at events organized as part of the Posidonia conference in Athens, some executives said they were eying a potentially protracted era of higher earnings, based in part on a bet that the global geopolitical environment will remain more dangerous for longer, and a supply of new ships that remains relatively low. 

In every private conversation, it was the recurring theme. Some said the troubled geopolitical times are good for business now, while others said they don’t see an end in sight to current disruptions.

In addition to rising geopolitical risk, owners have another reason to be bullish. 

Although there has been some ordering of new ships as earnings soar — causing some nerves about whether a boom can truly be sustained —  by historical standards, the pace of buying has been relatively subdued given strong freight markets.

That’s in large part because shipowners aren’t sure what the fuel that will replace traditional oil propulsion will be, meaning that vessel orders haven’t accumulated in the same way as during shipping’s last great boom period in 2008. 

“We have not really seen any alternative fuel that is either available, or very promising for the future,” said Ioannis Alafouzos, chairman of Okeanis Eco Tankers Corp. “We are quite pessimistic about alternative fuels in fact. Frankly speaking, we do not know where we are going, so for the time being we are sticking with conventional engines.”

Some argue that rates are currently so good, that shipping’s efforts to decarbonize are also likely to slow. That’s because such high earnings offer little incentive to put ships in dockyards and carry out work that would make them ready to burn cleaner fuels, according to DNV Maritime.

Even this week, as shipowners and brokers discussed the outlook for the market on the Mediterranean coastline, Houthi rebels continued to fire salvos of missiles at vessels in the Red Sea. 

One Greek owner said he expects that the impact of the attacks on shipping in the region could be felt even more acutely in the second half of the year for container and bulk commodity ships as those fleets get even more stretched out. 

That leaves owners bracing for a world that is more volatile for longer. 

“At what point do black swans become not black swans?” Hing Chao, executive chairman of Wah Kwong Maritime Transport Holdings, which owns a fleet of oil tankers and commodity carriers, said at the Capital Link Forum. “We’re reaching that point in the world unfortunately. As far as shipping is concerned I think in the short-to-medium any kind of disruption would be beneficial to shipping, but medium-to-long term it’s bad for everybody.”

© 2024 Bloomberg L.P.

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