Concerns over China’s economic prospects are mounting, with bigger risks lurking beneath the slowdown. Shipping that relies on this vast market on many fronts should take note. Draconian lockdowns and an ailing property market are seen among the biggest factors weighing on the country’s economy. Both are the results of heavy-handed policing. The government is easing the housing policy to encourage purchases. But few buyers are responding with enthusiasm. This is partly because Beijing’s continued zero-Covid strategy, which scrambles factories and consumers in China into a state of uncertainty, has obscured their views of a recovery.

Economists and analysts can foresee no better. “[China’s] outlook for the coming year seems unusually unclear, even though we are already at the end of the third quarter,” Nomura said in recent days. “Beijing continues to fire on all cylinders to stamp out the coronavirus. It has yet to release a clear road map for exiting its zero-Covid strategy.” Pessimists expect strict Covid rules to remain in place until March next year when the National People’s Congress will be conveyed to confirm President Xi Jinping’s third term, rather than the 20th party congress, which is less than three weeks away. The resilience of Chinese economy may allow it to withstand a few more months of this ordeal.

It may be even true that shipping could benefit from China’s return to infrastructure investment and fiscal stimulus to reignite its growth engine, as Standard Chartered chief strategist Eric Robertsen told a Marine Money forum. But what is more worrying is the political color that has been applied to China’s virus-control policy. Bragging about having purportedly the lowest Covid death rates worldwide, Beijing uses this argument to prove the Chinese system is better. Others that have gone down a co-existence path have simply sniffed and increasingly see the Middle Kingdom as an outlier. The widening ideological divergence matters in a way that is more profound than a short-term economic gyration, especially when the tensions between China and the west are escalating. The recent setback for Cosco’s Hamburg port terminal deal is a good example. The state-owned giant’s proposed acquisition of a 35% stake in Container Terminal Tollerort has been pushed back amid political resistance from Berlin.

Prominent Chinese economists have already started to debate about the fate of China’s open-door policy, with voices supporting a self-sufficient, state-controlled economy garnering more attention. And Mr. Robertsen’s fellow speaker, Maersk Tankers chief commercial officer Eva Birgitte Bisgaard, also brought up the situation in Taiwan, warning that further scarcity of semiconductors would likely push inflation higher and trigger a global recession. China’s growing military aggression towards the self-governed island was highlighted by the unprecedentedly large-scale drills it launched in the Taiwan waters earlier this year. The risks to trade and shipping from the situation in Ukraine are already ballooning. God forbid we’ll have another.

The capesize and panamax bulker sectors did not make much headway over the past week as the Pacific basin remained relatively quiet on fixtures, analysts said. The Baltic Exchange’s Capesize 5TC spot-rate average across five benchmark routes slumped to $16,214 per day on Friday, a 11.6% slump from a week earlier. The plunge erased any gains the index made in the prior week. “The capesize market failed to push through to higher values this week as lower activity in the Pacific hampered efforts,” Baltic Exchange analysts wrote on Friday in their weekly analysis of dry bulk shipping. “The Atlantic basin has been looking well supported with fixture values continuing to climb. However, a question mark remains as to whether the overall activity is enough to pull the wider market along.”

The North Atlantic has been “on diverging paths this week” with the Pacific basin. The average spot rate for the transatlantic C8 round voyage to deliver cargoes into Europe rose 50% over the past week to $20,167 per day on Friday. Meanwhile, the average spot rate for the C10 transpacific roundtrip route between Australia and China slid 52% during the same time to $9,159 per day on Friday. Rio Tinto hired four unnamed capesizes on Tuesday and Wednesday at freight rates ranging from $8.85 per tonne to $9.30 per tonne to send four 170,000-dwt shipments of iron ore from Dampier, Western Australia, to Qingdao, China. The ships are scheduled to be loaded from 10 to 14 October. Last Friday, BHP fixed an unnamed capesize last Friday at $10 per metric tonne to ship the commodity from Port Hedland, Australia, to Qingdao.

The panamax 5TC moved sideways for much of the past week, gaining 4.4% toward the end of the week to reach $18,742 per day on Friday. “It was a lethargic Pacific market this week, except for a minor push midweek from [North Pacific] and Australia destination Japan, with rates returning softer overall,” the analysts said. “It proved to be a real Atlantic/Asia divide this week for the panamax market.” An 82,000-dwt panamax took a spot rate somewhere in the mid-$15,000s midweek for a North Pacific trip, but this fixture may be a “one-off” since other panamaxes are getting $17,000 per day in line with market expectations, the analysts said.

The Supramax 10TC improved only two-thirds of a percent over the week to $18,292 per day on Friday. The Handysize 7TC gained 4.5% over the seven-day period to reach $18,159 per day on Friday.

Supramaxes continue to outperform larger bulk carriers. Today we investigate how they have fared during the current market downturn and what the main drivers will be in the short and medium term.

Current state of the market

The extent of the recent collapse in Capesize earnings was not mirrored in the Supramax segment. However, BSI embarked on a downward trend since May and dropped to a low of $16,199/d on 12 September, a 55% decline. Since then, it has bounced back and steadily improved to $18,500k/d (as of 28 Sep). While Supramax trade shrank by 5.6% over January—August this year compared to 2021, demand alone cannot justify the slump. Nowadays, the fleet is also running more efficiently. Trade diversions caused by the war have boosted Capesize average voyage distances, but Supramax trades have rapidly become shorter haul. Meanwhile, congestion remains at seasonal highs allowing the market to form a floor higher than other segments.

Q4 and 2023

A deteriorating economic outlook is a major headwind for shipping. Lower consumer confidence, higher borrowing costs and soaring energy prices all weigh on industrial demand. Manufacturing activity is very highly correlated with minor bulk trade, which reflects c.60% of Supramax demand. Looking at steel backhaul volumes for instance, which proved particularly tonne-mile intensive for Supras over the past couple of years, they have now come back down to earth. Despite a bleaker macro environment, we do not anticipate a collapse in minor bulk demand as global inventories remain on the low side in the post-pandemic world.

Grain trades are also likely to cause a headache in 2023. While demand is not an issue, future supplies are a major concern. The USDA currently forecasts a 36 MMT or a 1.3% drop in global grain output in the 2022/23 marketing year (Sep-Aug). On top of further losses from Ukraine, the acute fertilizer shortage could pose a significant threat to crop yields. Meanwhile, production curbs and export restrictions in major producing countries could affect Supramax utilization. In fact, fertilizer cargoes accounted for over 10% of geared ship demand last year versus less than 7% last month. In the meantime, however, a strong US soybean season is upon us to be followed by a record Brazilian harvest, currently pegged at 149 MMT, up from 126 MMT in 2022.

The potential easing of congestion is a major risk to the downside as it would accelerate active fleet growth at a time of softening demand. Although it is impossible to forecast the exact timing, we reckon Supramax congestion will stay above typical historical levels in the coming months.

2024 onwards

As discussed in our Big Picture dated 1 September 2022, China is saturated with traditional infrastructure projects and hesitant to overhaul its ailing housing market. Instead, Beijing is focusing on less steel-intensive projects which are aligned with its long-term aspirations to move away from investment to services and advanced manufacturing. This structural shift will not happen overnight, but it will gradually render the country more dependent on ferrous metals, minor ores, and minerals. As such, China’s import growth over the next decade will be skewed towards geared ships. Grains should be another major driver once production bottlenecks ease and inflation subsides. Not only is grain demand set to rise in line with population growth but restocking demand should also emerge. Global grain inventories came off in 2020 as the pandemic highlighted the importance of food security. A further 4% drawdown is estimated for 2023, which would see stocks retreat to a 6-year low. Meanwhile the Supramax fleet is entering a period of slower growth. We estimate a 2.4% expansion p.a. on average until 2026 vs 6.5% p.a. over the past decade. Although low by historical standards, it will coincide with a period of flattish seaborne trade growth. That said, with dry bulk demand growth in the following years stemming almost exclusively from grains and minor bulks, the Ultra/ Supramax segment is favored in the medium-to-long term.

Summary

Overall, we anticipate a rather stable Q4 with mild fluctuations. Headwinds pile up for 2023 as a global economic deceleration and the war impact bite. However, we do not foresee a return to previous lows in our base case scenario as supply-demand fundamentals appear healthier compared to past downturns. The dry bulk market should gradually rebalance from 2024 onwards and Ultras/Supras are primed to benefit the most. 

J Mintzmyer is a well-known shipping investor and industry pundit. He has provided exclusive shipping research via Value Investor’s Edge for over seven years and has witnessed numerous up- and down-cycles across shipping segments over the past 15 years. J shares his latest thoughts and a few top picks in this latest article.

I believe shipping stocks are offering investors an exceptional risk/reward setup; one of the best I have seen in my career, as underlying valuations rival the record lows set in mid-2020. At the same time, most balance sheets are pristine, shareholder returns are ramping up, and the supply-side setup is the best in modern history. The largest environmental regulation in history, EEXI 2023, begins in just three months with a multi-year phase-in through 2027 via a variety of measures including stringent carbon-emission regulations (“CII”) which will significantly slow down much of the global fleet between 2023 and 2027. These impacts will constraint a supply-side which already offers the best setup in modern history.

The demand-side is more in-flux. Tankers are benefitting from Ukraine-related disruptions including the upcoming proposed EU ban of Russian oil. Dry bulk is heavily dependent on iron ore, coal, and grain flows. Containerships are primarily a congestion-driven story with huge pending EEXI and CII impacts. LNG and LPG are poised to profit from significant re-routing of global energy flows towards Europe.

I have followed the shipping industry for nearly 15 years and observed numerous segment-cycles. The time to get long shipping is when there is a massive dislocation between broad market sentiment and segment-specific fundamental setups. The last similar dislocation occurred during mid-2020 when broad market ignorance led to the dumping of otherwise excellent-positioned firms across the dry bulk, gas, and containership segments. This setup is similar in terms of valuations, but the supply-side setup is even stronger and firm balance sheets are rock-solid. Unlike in 2020-2021, when most firms prioritized deleveraging, this time around, massive shareholder returns are in store if rates perform well. There are never any guarantees in shipping. Demand-side outcomes can be finnicky and are prone to black swan events in both directions. However, the best time to get long is when valuations are cheap, balance sheets are strong, and the supply-side is lopsided in the favor of owners and investors.

Time to significantly add to shipping?

While future returns cannot be guaranteed, and shipping stocks will likely remain very volatile for the near- to mid-term future, I believe the risk/reward setup for many shipping names is among the best I have seen, with valuations like the record lows last set in mid-2020.

When shipowners pay back debt early, that’s a good thing, right? In a savagely cyclical industry whose market troughs have claimed one company after another owing to high leverage over the years, it must surely be for the best when owners seem to have learnt their lessons. Will shipowners using cash for impressive debt repayment soon have another priority? Still, the feeling wasn’t entirely unanimous when a panel of lenders met up recently at Capital Link’s annual investor conference in New York.

“I have not ever seen this level of prepayments,” marveled Evan Cohen, the veteran DVB lender who now heads shipping at New York’s CIT Bank. “On one level it’s good. You like to see your clients making smart decisions. On the other hand, I have a job to do, which involves having people borrow money. We’ll probably see the same amount going out as coming back in this year. I’ve never seen so much money come back.”

It was an amusingly frank moment, made more so by a comeback from Christos Tsakanos, head of global shipping for DNB. “Bankers are never happy,” he said. “I think it’s a good thing. I think we’ll also see more consolidation as owners get stronger. So, I think it’s a net positive.” Citi global head of shipping, logistics and offshore Michael Parker also noted the trend, saying shipping’s overall debt level had been halved to $300bn from $600bn a few years ago. “One of the key problems for this industry has been high leverage, low leverage is where it needs to be,” Parker said. Due to uncertainty over future propulsion systems and other factors, Parker said he could not foresee a scenario in the near term where shipowners binge on ordering newbuildings. But Parker said there is another factor that will cause owners to part with some of their windfall cash: the adoption of new vessel emissions standards under the Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII) beginning in 2023. “The capital needs to be redeployed,” Parker said. “When CII comes in in January, then comes the issue of retrofitting ships. Those who have held back will be forced to spend some of that money. Retrofitting is where most of the money will go over the next few years, so it’s good that owners are in a strong cash position.”

Most of the aggressive debt paydown has come in dry bulk and container ships, where markets ran rampant in 2021 and into the first half of 2022. Both sectors now face markets coming off the boil, and container ship owners in particular stare down the inevitable issue of counterparty risk as the market resets. But public boxship owners like Zim, Seaspan Corp and its parent Atlas Corp and others have travelled some ways down the road toward investment grade credits, while their dry bulk peers dramatically lowered leverage and in the case of Genco Shipping & Trading have a target of zero net debt in the crosshairs. Now it may be time for tanker owners to exploit their own better-late-than-never market recovery and follow suit. “I think you can add Scorpio Tankers to that list,” said Jefferies analyst Omar Nokta in an interview with Streetwise, as he noted the company’s buyback of some 600,000 shares in recent months and declaration of purchase options on nine lease-financed tankers. “The unwind of the leasebacks are effectively prepayments of debt,” Nokta said. He does not see the EEXI/CII issue as much of a burden, at least on the public owners. “I don’t think we’ll see much in the way of capital outlay to comply with the EEXI/CII from the public companies, they look to be in good shape,” Nokta said. “However, we expect those with older fleets will gradually look to sell older non-eco ships and replace them with modern eco ships to enhance their ratings as we get into the second half of the decade.”

The burden may be relatively greater for smaller private owners as stated in a recent interview by NIBC Bank global shipping head Michael de Visser, who tends to finance such companies. He compared the burden to the requirement for ballast water treatment systems. “This is going to cost some cash,” de Visser said. “We as a bank are very focused on the balance sheet and cash position of our clients. It’s the same with ballast water treatment systems. Do you have the $500,000 that is needed?”

A recent Global Maritime Forum annual summit in New York saw the nonprofit’s initiatives target a more ambitious decarbonization path, but it also saw speakers focus their attention on the need for the IMO to take firmer, clearer action in the months ahead. During the two-day event, industry leaders pointed to a need for the IMO to step up with a higher ambition and market-based measures to trim the price gap between fossil fuels and cleaner alternatives. And some warned that the IMO is putting its relevance at risk if it fails to do so. As TradeWinds has reported, the Global Maritime Forum-backed Poseidon Principles initiatives have committed to benchmarking ship finance and insurance to a trajectory aimed at halting global warming at 1.5C and a separate net zero greenhouse gas emissions path. The IMO is looking to upgrade its ambition from 50% carbon emissions compared to 2008 to what is hoped by many to be a zero-carbon path.

Michael Parker, chairman for the Poseidon Principles for Financial Institutions, said that his group will look to the IMO’s Marine Environment Protection Committee meeting in 2023 to plot a trajectory for 2030 under an updated target for benchmarking against the net zero target. But what if the IMO does not deliver a path to zero? “The Poseidon principles will discuss if we replace the IMO, what we replace it with. We could end up in a rather ridiculous situation of an out-of-date IMO trajectory with a 50% cut on 2008 and a 1.5C trajectory on a sustainable basis,” said Parker. “What will happen then is, no one will look at the IMO trajectory when we report.”

He said that Poseidon Principles members want to recognize the IMO as a global regulator and hope it will accelerate its ambition. But while the initiative is guided by the IMO, it is not aligned with the UN body, Parker said. “If it goes backwards, then I think we may lose touch with the IMO if they’re no longer relevant,” he said. Gard chief executive Rolf Thore Roppestad, who is vice chair of the Poseidon Principles for Marine Insurance, said history has shown that when the IMO does step up, it can have a powerful impact. The volume of oil spills, for example, has shrunk by 97% in the last 10 years compared to the 1970s. That was not the result of insurers and shipowners starting to care about oil spills, but rather the IMO coming in later with a double-hull mandate for tankers. Roppestad said the IMO may take its time to produce a trajectory like that of the Global Maritime Forum-backed Poseidon Principles. “This is a long-term trajectory, and I think we need to have IMO on board,” he added. “What we are doing here is a very important contribution to get there: setting a long-term target, being transparent and getting focused on it.”

Jeremy Nixon, chief executive of container ship operator Ocean Network Express (ONE), expressed worries that it could take four years before the IMO implements market-based measures like a carbon levy or emissions trading scheme. “As an industry, we can do a certain amount of pioneering there, but we cannot move to big scale unless there’s some levelling up,” said Nixon, who is also co-chairman of container shipping industry group World Shipping Council (WSC). “We need the fuel costs to come up to [be] in line with the new fuel types, so market-based measures are critical.”

At the close of the event, DFDS chairman Claus Hemmingsen said those involved in the policy portion of the summit’s problem-solving sessions found that aligning with a zero-carbon target in 2050 would mean a 25% reduction by 2030 and a 90% reduction by 2040. “We said that it had to be a fair and conclusive strategy, and it had to be based on polluter pays.” Among the ideas for meeting that goal were a 2035 ban on building ships powered by fossil fuels and a 2050 prohibition on greenhouse gas emissions. But while Hemmingsen said that the group suggested nations must put pressure on the IMO, he urged summit participants to look beyond the Global Maritime Forum tent. “Very importantly, if you reach out to anybody, don’t reach out to people in this room, because we are all aligned,” he said, surrounded by a circle of Global Maritime Forum participants.

Just over a year ago on September 10, 2021, the Freightos Baltic Exchange Global Container Index peaked at $11,109. On September 9 this year, it stood at $4,682, a fall of 58%. As of September 23, it had fallen to $4,232, passing on the downward slope its level in January 2021 as rates began to rise exponentially. The descent has been almost as steep as the ascent was last year. As stock markets warn of recession in the US, as interest rates rise from historic lows and consumer confidence falls, US imports remain near all-time highs according to the McCown Container Volume Observer report from September 22. The report shows that the top 10 US container terminals imported 2.17m teu in August, the fifth-highest monthly tally on record. August was up 3% on July but flat year on year. Data from MarineTraffic suggest that the number of containerships queuing to unload in the US has fallen by about a quarter between July and September, to around 113 vessels. West coast US ports have taken the lowest share of US imports since the early 1980s. This is due mostly to liners switching discharge from Los Angeles and Long Beach (volumes down 11%) to Savannah, Houston, and New York (volumes up 12%).

Congestion remains an issue in many parts of the world and less congestion is not by itself enough to have caused such a decline in container freight markets, according to Vivek Srivastava of VesselsValue, who writes in a recent blog post that, “a variety of unexpected threats have surfaced to disrupt trade flows and supply chains in the major arteries and veins of the global economy. This disruption manifests itself most clearly in port congestion. It is a mistake to think this is over and is somehow to blame for dry bulk and container shipping’s wider woes.” Analysts at Shipping Strategy point out that port dwell days for empty containers being shipped out of the US and Europe exceed import days for full containers arriving, so port congestion is as much a factor of moving air-filled boxes as cargo-filled boxes. Furthermore, there is anecdotal evidence that buyers are delaying shipments to delay payments, suggesting that liquidity is becoming an issue and slowing down the movement of goods by sea. For instance, the Federation of Indian Export Organizations notes that among Asian buyers of Indian containerized exports, “the demand for liquidity has gone up as buyers are delaying the payments and asking exporters to withhold further shipments or release small quantities of such shipments.” As of mid-September, freight forwarders in India report weakening demand for exports to China, Hong Kong, and Singapore, with rates to Shanghai/Tianjin falling from around $500 per teu to $350 per teu in the last month and further to $300 to Hong Kong. The Federation of Indian Export Organizations says that “The contraction in global trade is also visible from the sharp decline in the freight rates, which have reduced by about 50% on major trade route… With inflation plaguing all economies, inventories are very high globally in all economies as the purchasing power has dwindled which has affected the offtake and thus the demand is slowing.”

As energy prices continue to rise in Europe, the European Commission is said to be working on ways to help corporations facing a liquidity crunch. On September 23, the People’s Bank of China injected RMB92bn ($13bn) of short-term liquidity into the banking system to avoid what Bloomberg refers to as a “cash crunch at quarter-end”. The root of liquidity problems for Asian economies and emerging markets globally seems to be the rising value of the US dollar. Cutting interest rates weakens the currency, making imports more expensive, which drives inflation if price rises can be passed on, or tightens liquidity for importers if not. The result seems to be a rapid fall in global containerized trade from a peak of 15.5m teu in May to 15.1m teu in July and possibly 14.7m in September. The consequence for freight rates on routes is clear. China–US west coast rates per teu slid 54% from $5,760 or so on August 23 to $3,450 on September 23. On the reverse route, where availability is tighter due to more ships heading direct from Asia to the US east coast, rates have risen 26% from $790 to $960 over the same period. On the head haul China-North Europe route, rates have fallen 27% from around $10,000 on August 23 to $7,300 on September 23. A lack of demand in China means that rates on the backhaul have also fallen from $700 to $500 over the same period. In the Atlantic, westbound rates from North Europe to USEC are down from $8,500 to $6,900 between August and September while the reverse route rates have seen less of a drop, from around $600 to $570, having briefly dipped to $500 in early September.

The Drewry World Container Index fell below $5,000 on September 15, having fallen for 200 days straight. Technical analysts note that the 200-day fall is to a 61.8% Fibonacci retracement level. Maybe that’s why Yang Ming Marine Transport chairman Cheng Cheng-mount told a Taiwan Stock Exchange investment seminar on September 12 that the market correction is “temporary” and that “We can adjust our shipping capacity according to the market“ to offer stability. If we are back in a situation in which the liners must manage supply to support freight rates, then non-operating owners of container ships should be concerned. Time charter rates could do with some stability, as they are going downhill faster than Franz Klammer. Since August 1, the Harper Petersen Harpex Index of 12-month time charter rates shows a 40% fall from 4,400 to 2,580. Similar numbers are available from other brokers. It would appear then that the liner shipping boom was after all a consequence of the disruption to global logistics that the pandemic caused, followed by the unprecedented fiscal loosening practiced in, even by countries with a reputation for fiscal discipline in recent decades, such as the US and UK. All in all, it looks like the container shipping boom is now over.

It was only in March last year that shipping truly came into the public consciousness. Suddenly, the world was full of shipping experts as mainstream media ran wall-to-wall coverage of the six-day grounding of the Ever Given. Since then, our industry has remained in the public eye thanks to the repeated headlines related to inflation, congestion, and persistently high shipping costs.

The fact is, according to multiple panelists speaking at this week’s Marine Money conference in Singapore, the world must accept shipping will get more expensive in the years ahead. The event discussed many of the industry’s top topics such as decarbonization, globalization and ESG, but an overarching theme throughout much of the debate was on the increased costs coming shipping’s way, and by extension to the end user.

Setting the scene well was Arjun Batra, the veteran executive chairman of shipping consultancy Drewry, who discussed the golden years shipping has enjoyed since the 1990s with the rise of China. “Most of the growth has been driven by cheap rates,” Batra said, adding: “Yes, there have been periods of volatility, but it has been generally cheap. Going forward the cost of shipping will be much higher thanks in part to decarbonization. We are entering an era of substantially higher rates.” Batra predicted that long term seaborne trade will grow slower, and that the shipping industry will be smaller by 2050.

Also convinced that shipping was entering a period of higher costs was Pietro Allevato, a dry cargo broker with Bancosta. “We see a cost situation. There is a need for investments, especially regarding new fuels. The biggest issue we are facing is the issue of costs, and this will impact supply and demand,” Allevato said, arguing that the costs to decarbonization needs to be shared. “Freight costs will have to accommodate these additional costs,” Allevato warned.

Eric Robertsen, global head of research and chief strategist at Standard Chartered, argued that while the nature of globalization has changed in recent years, it is still here to stay, albeit with increased costs. These increased outlays are not just higher supply chain costs but are due to uncertainty. Risks have increased, the cost of insurance has gone up, Robertsen pointed out. Pre-covid, shipping enjoyed low interest rates and low asset prices, so the cost of hedging was immaterial, but today the cost of hedging and financing has shot up. “So, people looking at new businesses in shipping will face greater scrutiny,” Robertsen argued.

Carrying on this theme about globalization was James Marshall, CEO and founder, Berge Bulk, one of Singapore’s largest shipowners. “One of the worries about deglobalization is the risk of cutting back on what has been happening about sustainability,” Marshall told delegates.

Abhishek Pandey, global head of shipping finance at Standard Chartered, suggested shipping was currently sitting at the top of the cycle and it was vital to use the cash made to recalibrate the fleet. “If the reconfiguration of globalization has to happen as well as decarbonization, shipping will come out of it in a very different light,” Pandey said. Heng Chih Chwen, director, shipping finance, Standard Chartered, pointed out that the global merchant fleet today is worth $1.4trn, up dramatically from $1trn just two years ago. Adam Kent, who heads up consultancy Maritime Strategies International (MSI), had good news for delegates, saying that the 2020s is on course to outperform the last two decades rates-wise.

“Sounds like a buying opportunity to me.” Thus spoke one shipping veteran of five decades when recently discussing an analyst’s prediction that the capesize bulker spot market may just meet operating costs until the end of 2025. Judging by the number of potential buyers who are expressing interest in the ships which are coming onto the sale and purchase market, others share his upbeat view, and it’s not all doom and gloom amongst those who have been around for a while.

Eternal optimism is a quality shipowners are either blessed or cursed with, depending on your perspective. As VLCC rates edged towards $70,000 a day in September bringing a brutal run to an end, it was certainly a relief to the owners who had looked on enviously whilst their bulk carrier owning colleagues had reaped the benefits of a solid couple of years. We are approaching the anniversary of capesize rates hitting close to $87,000 per day just 12 months ago.

Since then, it’s been a mixed ride for the big bulkers. Pre-Posidonia, they were enjoying a close to $40,000 per day market, although by the time the clinking of champagne glasses ended in Greece, $20,000 was the benchmark. The return from summer holidays was met with a $2,500 market which no doubt prompted a few bankers’ sun tans to quickly fade, but a more than six-fold increase since then has given hope that even with so much bad news on the economic and political fronts, shipping will pull through as it always does, eventually.

That belief that markets will ultimately turn around is based on decades of hard-earned experience. It’s hard to believe that those who entered shipping at the start of the great recession of the 1980s are now beginning to look towards the end of their careers. For those lucky enough to have enjoyed more than four decades in this game, they can look back on a rollercoaster ride few other industries can come close to emulating. Hopefully, in addition to witnessing such game changers as OPA 90, the emergence of China’s dominant role in shipping and at least a dozen other events that caused markets to rise and fall, those 40-year plus veterans managed to make a reasonable living. No matter the state of their bank balance when they do leave this industry (if they can drag themselves away from it), their wealth of war stories will largely focus on how they rode the uncertainty, volatility and unpredictability that makes shipping so attractive to some and prompts others to run a mile. You don’t find many actuaries becoming shipowners.

It is unlikely that many new industries will emerge that can match the excitement that shipping’s violent cycles can produce. The financial media has recently been running stories bemoaning the fact that there have been less tech IPOs this year than at any time since the global financial crisis. The head of tech equity capital markets at a leading investment bank was quoted as saying: “Uncertainty is the enemy of the IPO market.” Uncertainty the enemy? Hardly the case for shipping. It’s what we thrive on. Perhaps the investor who sees that gloomy analyst’s prediction on the capesize market as a buying opportunity will be proved right. History suggests he may well be.

A recent Global Maritime Forum annual summit in New York saw the nonprofit’s initiatives target a more ambitious decarbonization path, but it also saw speakers focus their attention on the need for the IMO to take firmer, clearer action in the months ahead. During the two-day event, industry leaders pointed to a need for the IMO to step up with a higher ambition and market-based measures to trim the price gap between fossil fuels and cleaner alternatives. And some warned that the IMO is putting its relevance at risk if it fails to do so. As TradeWinds has reported, the Global Maritime Forum-backed Poseidon Principles initiatives have committed to benchmarking ship finance and insurance to a trajectory aimed at halting global warming at 1.5C and a separate net zero greenhouse gas emissions path. The IMO is looking to upgrade its ambition from 50% carbon emissions compared to 2008 to what is hoped by many to be a zero-carbon path.

Michael Parker, chairman for the Poseidon Principles for Financial Institutions, said that his group will look to the IMO’s Marine Environment Protection Committee meeting in 2023 to plot a trajectory for 2030 under an updated target for benchmarking against the net zero target. But what if the IMO does not deliver a path to zero? “The Poseidon principles will discuss if we replace the IMO, what we replace it with. We could end up in a rather ridiculous situation of an out-of-date IMO trajectory with a 50% cut on 2008 and a 1.5C trajectory on a sustainable basis,” said Parker. “What will happen then is, no one will look at the IMO trajectory when we report.”

He said that Poseidon Principles members want to recognize the IMO as a global regulator and hope it will accelerate its ambition. But while the initiative is guided by the IMO, it is not aligned with the UN body, Parker said. “If it goes backwards, then I think we may lose touch with the IMO if they’re no longer relevant,” he said. Gard chief executive Rolf Thore Roppestad, who is vice chair of the Poseidon Principles for Marine Insurance, said history has shown that when the IMO does step up, it can have a powerful impact. The volume of oil spills, for example, has shrunk by 97% in the last 10 years compared to the 1970s. That was not the result of insurers and shipowners starting to care about oil spills, but rather the IMO coming in later with a double-hull mandate for tankers. Roppestad said the IMO may take its time to produce a trajectory like that of the Global Maritime Forum-backed Poseidon Principles. “This is a long-term trajectory, and I think we need to have IMO on board,” he added. “What we are doing here is a very important contribution to get there: setting a long-term target, being transparent and getting focused on it.”

Jeremy Nixon, chief executive of container ship operator Ocean Network Express (ONE), expressed worries that it could take four years before the IMO implements market-based measures like a carbon levy or emissions trading scheme. “As an industry, we can do a certain amount of pioneering there, but we cannot move to big scale unless there’s some levelling up,” said Nixon, who is also co-chairman of container shipping industry group World Shipping Council (WSC). “We need the fuel costs to come up to [be] in line with the new fuel types, so market-based measures are critical.”

At the close of the event, DFDS chairman Claus Hemmingsen said those involved in the policy portion of the summit’s problem-solving sessions found that aligning with a zero-carbon target in 2050 would mean a 25% reduction by 2030 and a 90% reduction by 2040. “We said that it had to be a fair and conclusive strategy, and it had to be based on polluter pays.” Among the ideas for meeting that goal were a 2035 ban on building ships powered by fossil fuels and a 2050 prohibition on greenhouse gas emissions. But while Hemmingsen said that the group suggested nations must put pressure on the IMO, he urged summit participants to look beyond the Global Maritime Forum tent. “Very importantly, if you reach out to anybody, don’t reach out to people in this room, because we are all aligned,” he said, surrounded by a circle of Global Maritime Forum participants.