This week, the report will focus on the state of the global freight market, the driving force, and where it will be leading to from an Asia perspective.
The health of the global economies and markets has been all but impossible to ignore in recent times. For many, it has been in particularly sharp focus since the beginning of the Covid-19 period.
The reactions and responses by respective governments around the world to Covid-19 differed in their financial magnitude. However, when aggregated, the effect was a truly large global stimulus package that was unleashed to counter the ill effects that economies were struggling with. This large stimulus is thought to have spurred on buyer demand, housing booms and commodity price rallies, just to identify a few affected areas.
While Covid-19 is still present, the world has managed to restore normal daily life in many countries but is now grappling with the economic effects that the past couple of years have produced. The many years of cheap financial liquidity driving higher values have installed rampant inflation levels across the world. Core staples like housing, food and energy are often in the spotlight while central governments lift interest rates to recoup spent stimulus packages and stem inflation levels.
The effects on shipping are evident. In the dry bulk sector, last year’s strong market returns were thought to be a precursor to a surging 2022 as demand and supply fundamentals looked strong.
The charts below highlight the Baltic Dry Index and the main Time Charter dry Baltic indices. They show that the dry sector is currently experiencing sustained headwinds and the values are currently not even at half of last year's returns.
The Baltic Dry Index is said to provide an early economic indicator of activity within many industries. The largest component of the Baltic Dry Index is the Capesize sector whose downward trajectory since late May is shown clearly. The Capesize is heavily linked to iron ore delivery into China. In recent times, the price of iron ore has slumped in China due to poor demand and anticipated troubles within the building sector.
Slightly smaller segments of the Panamax, Supramax and Handysize have all fared no better as values have eroded over the past few months. Iron ore is central to the construction industry, yet these smaller vessel segments carry numerous other bulk materials that are also vital for many industries.
The reduction in demand for dry bulk commodities has been complicated by increases in the cost of energy prices. The value of oil, coal, and gas has risen significantly, largely due to geopolitical tensions.
From a shipping perspective, the movement of oil can be seen through the demand for tankers globally. In the chart below, the Baltic Clean Tanker Index represents cleaner refined oil tankers. Also, the Baltic Dirty Tanker Index represents unrefined crude oil carriers which are shown to be increasing in demand since February 2022. This coincides with the beginning of the Ukraine Russia tensions.
The segment had serious struggles throughout most of the Covid period as governments restricted both people movement and business activities, causing demand to evaporate during this time. Both the dry and wet shipping segments are largely reactionary to the current economic storms that going on around the world.
Covid, geopolitical tensions, and climate change are swirling together to reduce global growth. Also, elevated inflation levels cause food shortages and raise tensions both between and within countries. It might be the beginning of the end of Covid, but its impact will likely linger for a period.
In summary, the view for Asia from a shipping perspective is anything but clear. Demand and supply fundamentals combined with several regulatory changes that are soon to arrive in the coming year indicate stronger shipping levels to come. However, severe economic downturns in other industries and the dreaded threat of recessions, inflation, and possibly further geopolitical tensions each can derail any fundamental outlook. Historically, it is a strong period for dry bulk shipping hence, rallies are usually expected but a positive turnaround in dry and wet freight shipping in Asia appears improbable in the near term.
The health of the global economies and markets has been all but impossible to ignore in recent times. For many, it has been in particularly sharp focus since the beginning of the Covid-19 period.
The reactions and responses by respective governments around the world to Covid-19 differed in their financial magnitude. However, when aggregated, the effect was a truly large global stimulus package that was unleashed to counter the ill effects that economies were struggling with. This large stimulus is thought to have spurred on buyer demand, housing booms and commodity price rallies, just to identify a few affected areas.
While Covid-19 is still present, the world has managed to restore normal daily life in many countries but is now grappling with the economic effects that the past couple of years have produced. The many years of cheap financial liquidity driving higher values have installed rampant inflation levels across the world. Core staples like housing, food and energy are often in the spotlight while central governments lift interest rates to recoup spent stimulus packages and stem inflation levels.
The effects on shipping are evident. In the dry bulk sector, last year’s strong market returns were thought to be a precursor to a surging 2022 as demand and supply fundamentals looked strong.
The charts below highlight the Baltic Dry Index and the main Time Charter dry Baltic indices. They show that the dry sector is currently experiencing sustained headwinds and the values are currently not even at half of last year's returns.
The Baltic Dry Index is said to provide an early economic indicator of activity within many industries. The largest component of the Baltic Dry Index is the Capesize sector whose downward trajectory since late May is shown clearly. The Capesize is heavily linked to iron ore delivery into China. In recent times, the price of iron ore has slumped in China due to poor demand and anticipated troubles within the building sector.
Slightly smaller segments of the Panamax, Supramax and Handysize have all fared no better as values have eroded over the past few months. Iron ore is central to the construction industry, yet these smaller vessel segments carry numerous other bulk materials that are also vital for many industries.
The reduction in demand for dry bulk commodities has been complicated by increases in the cost of energy prices. The value of oil, coal, and gas has risen significantly, largely due to geopolitical tensions.
From a shipping perspective, the movement of oil can be seen through the demand for tankers globally. In the chart below, the Baltic Clean Tanker Index represents cleaner refined oil tankers. Also, the Baltic Dirty Tanker Index represents unrefined crude oil carriers which are shown to be increasing in demand since February 2022. This coincides with the beginning of the Ukraine Russia tensions.
The segment had serious struggles throughout most of the Covid period as governments restricted both people movement and business activities, causing demand to evaporate during this time. Both the dry and wet shipping segments are largely reactionary to the current economic storms that going on around the world.
Covid, geopolitical tensions, and climate change are swirling together to reduce global growth. Also, elevated inflation levels cause food shortages and raise tensions both between and within countries. It might be the beginning of the end of Covid, but its impact will likely linger for a period.
In summary, the view for Asia from a shipping perspective is anything but clear. Demand and supply fundamentals combined with several regulatory changes that are soon to arrive in the coming year indicate stronger shipping levels to come. However, severe economic downturns in other industries and the dreaded threat of recessions, inflation, and possibly further geopolitical tensions each can derail any fundamental outlook. Historically, it is a strong period for dry bulk shipping hence, rallies are usually expected but a positive turnaround in dry and wet freight shipping in Asia appears improbable in the near term.
The opinions expressed herein are the author's and not necessarily those of The Xinde Marine News.
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