Market insight

By George  Laios

Deputy CEO, Intermodal Group

There is an old, allegedly Chinese, saying suggesting that living in “interesting” times usually refers to times of trouble. The latest developments on a global scale indicate that most probably we are among the less fortunate. Another saying though suggests that “there is always something good in every bad”. Surely, no-one doubts that the new virus may cause thousands of deaths. It also goes without saying that a prolonged shutdown of every developed/developing country of the world will have severe economic and social consequences. This is now clear to everyone. We are constantly being bombarded with bad news by way of noisy words such as “markets free fall”, “huge sell off”, “bankruptcy”, “worst ever recession”, “collapse” etc. This is so stressful.

However, there is also some good news. Apart from the hundreds of scientists and laboratories currently looking for ways to fight the virus, there are unprecedented, huge fiscal and monetary stimulus packages offered by governments and central banks across the world and almost in a coordinated way. They are ready to do ‘’whatever it takes’’ so that the global economy gets back on its feet. Rate cuts, loan guarantees, tax cuts, wage subsidies, liquidity schemes and asset purchase programs are just a few of the tools that governments and central banks have already decided to use so that they don’t allow economies to derail.

So, apart from the daily 1-2 hours’ bad news “update”, what should the news talk about? Where is the “good” in all this bad? It is hiding in the day after. This is the day after the lockdown measures are over; the day that the global economic growth will start gathering pace. Regardless of what its shape will be – ‘’V’’, ‘’U’’, ‘’L’’ or ‘’W’’ – recovery will eventually come, as it has done in all the previous ‘’catastrophic’’ times in human history. However, it will still be the end of the world as we know it, both in micro and macro-economic level.

Digitalization will grow even faster. People will change the way they live and work. New and more productive ways of working will be adopted, through smart working, with less physical (i.e. less commuting and traveling) and much more efficient meetings. E-commerce, tele-medicine and on-line education will also flourish, all allowing more free personal time for everyone.

Supply chains – logistics. Most, if not all, large manufacturing companies will re-consider their current just-in-time inventory management and their reliance on global networks of suppliers. Raw material stocks will be increased as additional reserve cushions in order to prevent exhausted inventory and production disruption due to a global shutdown as the one we are currently facing. Logistics’ hubs will also be re-considered so that they are better (geographically) positioned.

In view of all the above, most likely debt providers will follow suit. Further to the financial standing of each company, its environmental, social and corporate governance, I would be most surprised if the financiers did not add in their checklists each company’s emergency and crisis management plans. In the meantime, and until we reach the ‘’day after’’, let’s all stay at home, stay safe and buy some more time for the people who work either to clinically fight the virus, or provide the means so that we all suffer as less casualties of any kind, as possible.

Chartering (Wet: Firm+ / Dry: Soft-)

With average earnings for all sizes ending last week with sizeable discounts, sentiment in the dry bulk market remains challenging, while the first positive BCI closing in two months noted today could support market momentum in the following days. The BDI today (31/03/2020) closed at 626 points, up by 78 points compared to Monday’s (30/03/2020) levels and increased by 23 points when compared to previous Tuesday’s closing (24/03/2020). A significant jump in Middle East activity last week was all that was needed for the crude carriers market to start moving up again, while at the same time oil prices recorded 18-year lows. The BDTI today (31/03/2020) closed at 1,394, increased by 353 points and the BCTI at 866, an increase of 20 points compared to previous Tuesday’s (24/03/2020) levels.     

Sale & Purchase (Wet: Soft- / Dry: Soft-)

Travel restrictions, port closures and a virus that does not discriminate between different shipping functions, have all turned the second hand market into a very quiet place last week,  while even while sitting on the sidelines, some Buyers are still looking for potential bargains. In the tanker sector we had the sale of the “NOBLE SPIRIT” (45,282dwt-blt ‘01, Japan), which was sold to Chinese buyers, for a price in the region of $6.75m. On the dry bulker side sector we had the sale of the “AFRICAN KINGFISHER” (55,476dwt-blt ‘09, Japan), which was sold to Indonesian owner, PT Tanto Intim Line, for a price in the region of around $9.7m.

Newbuilding (Wet: Stable- / Dry: Stable+)

Contracting activity in the newbuilding market remains significantly soft, with less than a handful of orders surfacing last week. This comes as no surprise given the fact that for shipping investors in most sectors it is already a big challenge to set out a strategy for the remainder of this year, let alone assess the prospect of a newbuilding investment at this stage. The shipbuilding industry, having fully grasped the fundamental changes that are already taking place as the pandemic spreads, seems to be already getting into serious consolidation mode as the crisis unravels. In this spirit and following the example of their Chinese and South Korean competitors, Japanese shipbuilding giants Imabari and JMU decided to form a joint venture that will bring together the full spectrum of their respective facilities in an effort to survive in an increasingly competitive market environment. In terms of recently reported deals, Chinese owner, Ming Wah Shipping, placed an order for four firm Ultramax bulk carriers (61,000 dwt) at Jinling, in China for a price in the region of $29.7m each and delivery set in 2022.

Demolition (Wet: Soft-/ Dry: Soft-)

With demo destinations in full lockdown for now and no clear indication of when operations could realistically resume, sentiment in the demolition market has without a doubt hit rock bottom, while it goes without saying that the limited activity reported below concerns sales that took place before all major demo destinations were forced to shut. As neither actual sales nor any negotiations are currently taking place, it has become impossible to report average demolition prices and this could continue well into next month as well. The fact that this lockdown coincides with a time that a big number of vintage tonnage owners is facing challenging freight rates, makes things even worse as even the demolition option is now off the table for them.

Please find below the Intermodal market report for week 13 2020.

Intermodal Report Week 13 2020