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The world is again sailing in uncharted waters

First there was Covid outbreak, then the port congestion came up, followed by an energy crunch like no other. Now inflation is hitting the world economy and the world is again sailing in uncharted waters.

Seven days ago, the annual inflation rate in the US unexpectedly accelerated to 8.6%, the highest since December of 1981 and higher even than market forecasts of 8.3%. At the same time inflation has hit almost every western economy. In the Euro Area the annual inflation rate was confirmed at a record high of 8.1%, four times higher than a year earlier. Austria recorded a 7.7% inflation rate, the highest since 1976. Italy saw inflation at 6.8%, the highest point since 1986. The French inflation rate confirmed a 24 year high at 5.2% while the UK’s inflation rate jumped to 9%, the highest level since 1982.

One could say that western economies are one step before the emergency room and central banks are trying to do whatever it takes to keep them away from the defibrillator. Trying to confront the highest US inflation in 40 years, the Federal Reserve raised its interest rate by 0.75% and announced that another adjustment of that size is possible at the next meeting, part of an aggressive plan to tighten monetary policy. The Bank of England following the Fed’s step, increased the interest rate to 1.25% and markets believe that is preparing to endorse a half-point interest rate increase at its next meeting in seven weeks, stepping up its effort to fight inflation. Probably the European Central bank will follow. High interest rates target to reduce the money circulation and “kill” demand, in order to reverse inflation.

But how is it going to affect shipping? Probably shipping won’t be affected much. The container market may be affected the most as monetary tightening is targeting consumer demand. Container freight rates may see some increased pressure but even if they move south, from today’s levels, they shall remain healthy and produce profits. On the bulker side things may not be affected much. Infrastructure projects that have been announced are still going to materialise despite inflation or interest rates increases. Coal will be in high demand at least as long as crude oil and natural gas prices are at high levels and the war in Ukraine has changed the seaborne trade in a way that new routes and ton miles have been added to the shipping picture. The tanker market probably will continue quite strong in 2023 as low orderbook more or less guarantees a tight vessel supply, while IEA predictions that the global oil supply could struggle to match demand in 2023 and global oil demand in 2023 will be above pre-pandemic levels at 101.6 mil b/d probably forecasts a quite firm demand. Finally, gas carriers will continue to be under the spotlight unaffected by inflation and interest rates because of the turnover of European market to LNG, in a try to become independent of the Russian natural gas. The only thing that may really disrupt and negatively affect shipping as much as the global economy will be any possible new and long lockdowns in China because of the zero-covid policy which can not be forecasted.

After a two-week fall, the dry bulk market rebounded from its two-month low levels, with the BCI closing the week at 2,987 points an increase of 26% w-o-w. Following the BPI with an increase of around 9%. The market prospects look promising as China is to set up centralised iron ore buyer to counter Australia’s dominance. Beijing plans to consolidate China's iron ore imports through a centrally controlled group by the end of the year as Xi Jinping's administration seeks to increase its price control over the industry. China expects that bulk purchases will secure lower prices for steel sector that is the world’s biggest ore consumer, most of which is supplied by Australia. On the other hand, Australia’s steps to avert blackouts by giving itself the power to halt coal exports if needed to ease the country's crippling power crisis have created questions over the market. Going back to the indices, the Supramax & Handysize closed slighter lower at 2,467 & 1,343 respectively compared to past week. Some encouraging news is that Ukraine has found way to start again the grain exports mainly using the railway or Danube river to reach main ports outside of Ukraine. For the time being this has favoured mainly smaller bulkers and general cargo vessels and has built momentum in Black Sea.

Sale and Purchase:

In the dry S&P activity, clients of Oldendorff sold 2x Post-Panamaxes, the “Constantin Oldendorff” - 93K/2012 Cosco Zhousan & the “Clemens Oldendorff” - 93K/2012 Cosco Zhousan for USD 21.65 mills each to UAE buyers. Moving down the sizes, 4x New Dayang built Ultramax newbuildings with hull numbers “New Dayang Dy4162” - 64K/2024, “New Dayang Dy4163”- 64K/2024, “New Dayang Dy4164”- 64K/2024 & “New Dayang Dy4165” - 64K/2024 were sold for USD 32.5 mills each to clients of CMES Marine. In the Supramax sector, Chinese buyers acquired the BWTS fitted “Ignazio” - 58K/2010 Tsuneishi for excess USD 19 mills. Finally, the Japanese built handysize “Super Valentina”- 33K/2013 Shin Kurushima found new owners for USD 22mills.

In the wet S&P activity, the BWTS fitted VLCC “Koho I”- 301K/2002 IHI was sold for USD 28.5 mills. On the MR2 Sector, 4x Chinese built newbuildings, the “Hy Cedar” - 50K/2023 GSI, the “Hy Oak”- 50K/2023 GSI , the “Hy Ginkgo” - 50K/2022 GSI & the “Hy Spruce” - 47K/2022 GSI were sold for USD 152 mills enbloc to clients of JP Morgan. 2x MR1, the “Hafnia Victoria” - 40K/2007 Saiki & the “Hafnia Rainier”- 40K/2004 Saiki were sold for USD 12.5 mills & USD 10 mills respectively. Last but not least, Turkish buyers acquired 3x Clean trading Chemical tankers, the “Tiger Winter” - 9K/2011 Dongfang, the “Tiger Spring” - 9K/2009 Dongfang & the “Tiger Summer”- 9K/2009 Dongfang for USD 12.5 mills each.

Xclusiv Shipbrokers Inc.