Geopolitical Worry Builds Alongside Shipping Profits At Marine Money Week

By John Konrad (gCaptain) At the intersection of big banking and big shipping is Marine Money Week 2022, an annual event in Manhattan that hosts executives from both industries. After a long Covid hiatus, the event resumed this week with a mix of jububilent optimism for an industry that’s booming and concern over the climate, a possible recession, and geopolitical tensions.

Front and center at the conference are the enormous profits the maritime industry is making. Nearly all sectors are off their decade long lows with some – including containerships, dry bulk, LNG, and product tankers – screaming higher. The general consensus is that most shipping companies are using profits not to fleece the American public, as President Biden recently remarked, but to reduce debt, invest in people, and find new opportunities to reduce climate change.

Most experts remain bullish on the industry despite worries about a slowdown in the economy and a tumble in shipping stock indexes this week following fears of an economic slowdown. The primary reason for the optimism is two-fold. Geopolitical risks, including war (and possible famine) in the Black Sea, are causing ships to travel further for cargo which, combined with port lockdowns/congestion, has reduced overall shipping capacity. Second, with the exception of the containership sector, which is building a large amount of new ships, few executives are willing to spend money buying new ships. Instead they are mostly eager to return money to investors via dividends and stock buybacks.

“2020 was problematic for shipping but, in general, the markets have bounced back exceptionally well, with perhaps the exception of crude and chemical tankers,” says Adam Kent of Maritime Strategies International. “One important metric looking forward is fleet size. Usually during a boom cycle overbuilding is problem across all sectors but, apart from a few sectors were it could become a problem, fleet growth has not been a problem. It’s been in low single digit territory.”

Climate concerns are the clear priority this week. So far every single speaker has mentioned decarbonization and well over a half dozen speakers and panels are focused on either climate change, decarbonization or Environmental, Social, and Corporate governance (ESG) issues.

“The amount of interest in climate issues is staggering,” said David Cummins, President of the Blue Sky Coalition. “If someone came to me three years ago and said we want to start a coalition that’s going to fundamentally change the way an entire sector works – and we would have to do it virtually – I would have suggested their time would be better spent playing golf… but the pandemic has taught us we can get things done in an entirely new way.”

But is the focus on climate change too much considering there is a major war in Europe and the world is facing a potential famine? Is saving 5% on an emissions reducing data product – as one bulk ship owner claims they have – still important if the ships are sailing much further distances and are carrying a lot more coal?

A heavy dose of realism came during an interview with Andreas Sohmen-Pao, chairman of the giant BW Group of shipping and renewable companies. Sohmen-Pao warned that shipping must focus on the geopolitical tensions around the world which are “playing out like a bad movie”.

“I am very positive about the shipping output. I am very worried about the world,” said Sohmen-Pao. “During the last few decades we’ve built this incredible economic machine. It was built on the back of cheap energy, cheap money, and low cost labor. And now the system is experiencing a period of unbelievable stress.”

Sohmen-Pao, who was an early investor in decarbonization and holds a large portfolio of ESG focused companies like BW Solar and Corvus Energy, said he’s bullish on shipping not because of normal economic indicators but because shipping is a “play on the dislocation of demand.”

“If something shakes supply, if we don’t have enough of something and you need to move it to the other side of the planet, that’s where shipping companies come in,” said Sohmen-Pao. “And it’s an even bigger problem if what needs to be moved is absolute human essentials like energy and food.”

He challenged the industry to focus on the big macro environmental and social problems facing the world and finished with an incredible statement.

“I’ll leave you with this. In 2018 and 2019 China produced more cement than the United States used in the entire 20th century. We are now consuming 4.5 billion tons of cement and the same is for oil and nearly everything else.”

But all is not lost according to Sohmen-Pao. He is very worried about the world in the next three years but is bullish on shipping and is optimistic on humanity 10 years out. “Humanity is amazing at solving problems. Shipping is going to be a fun and rewarding space this decade for those who enjoy solving big important problems.”

Hopefully that message will resonate with youth that has been moving away from industrial segments like shipping and energy and towards to technology and entertainment hubs like San Francisco, Los Angeles, and Austin. ”We have a lot of work to do and big problems to solve,” said Hamish Norton President of Star Bulk Carriers. ”We can’t do this alone. We need to lean into the talent side of the equation. We need to attract more young and motivated people.”