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Batten Down the Hatches

Posted on May 17, 2016

By Ben Hackett, portstrategy

We see major overhangs of supply in all three categories of vessel type, container, dry and liquid bulk. There is far too much tonnage chasing too little cargo as demand has evaporated and the result of that is that freight rates and charter rates are all sinking to rock bottom with no sign of relief.

Deletions are not enough to equalize the imbalance and the concept of sailing around Africa to soak up some of the spare capacity is not looked upon favourably by cargo owners.

Additionally, the economic and geo-political risks on the global scene are getting worse: virtually on a weekly basis we see revisions to global GDP and trade growth and learned economists raising their percentage risk of recession. The latest that I have seen has risen to 30% and there are views that suggest that the risk is as high as 50% that the global economy will grow below 2%, the magic line between good and bad.

We keep hearing in Europe and the U.S. that sales growth is up and retail sales are healthy, but when we look at the volume flow of consumer goods to both destinations we cannot find evidence of this as demand for shipping space is meagre to say the least.

Economists and international institutions tell us that despite the glut of oil, prices will go up. The dry bulk traders had a one day hiatus of iron ore prices bouncing up, but that disappeared as there is no evidence of a similar increase in industrial production.

In the U.S, the inventory-to-sales ratio steadfastly creeps up every month having reached levels near to previous recessions, so it is hard to prove that consumers are out spending cash which has hardly increased in years. Compared to the pre-Great Recession figures the savings-to-earnings ratio is nearly double.

Don’t tell this economist that things are good. There are few positive signs, maybe a lot of wishful thinking and plenty of false optimism. In my view, we should be battening down the hatches.

Source: portstrategy

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