Are Geopolitical Conflicts Push Shipping Towards a Golden Era?

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If there was a universal theme at the parties, presentations, and meetings in the world’s shipping capital Athens this week, bad times are good for business, reports Bloomberg.

Geopolitical Conflicts

That’s to say that geopolitical conflicts and doubts about the supply of new ships mean shipowners are bracing for a prolonged earnings boom.

Andy Dacy, managing director, and group head of the global transportation group at JPMorgan Asset Management — whose multi-billion dollar portfolio includes extensive investments in the maritime industry, encapsulated it best.

The cost of hiring ships has been about a third higher than the average for the last ten years so far in 2024, according to Clarkson Research Services Ltd., a unit of the world’s largest shipbroker, propelled in part by ships sailing thousands of miles extra to avoid attacks in the Red Sea. Similarly, Russia’s invasion of Ukraine has led to trade dislocations that are forcing oil tankers on far longer voyages than would otherwise be the case.

Speaking at events organized as part of the Posidonia conference in Athens, some executives said they were eying a potentially protracted era of higher earnings, based in part on a bet that the global geopolitical environment will remain more dangerous for longer, and a supply of new ships that remains relatively low.

In every private conversation, it was the recurring theme. Some said the troubled geopolitical times are good for business now, while others said they don’t see an end to current disruptions.

In addition to rising geopolitical risk, owners have another reason to be bullish.

Although there has been some ordering of new ships as earnings soar — causing some nerves about whether a boom can truly be sustained —  by historical standards, the pace of buying has been relatively subdued given strong freight markets.

That’s largely because shipowners aren’t sure what the fuel that will replace traditional oil propulsion will be, meaning that vessel orders haven’t accumulated in the same way as during shipping’s last great boom period in 2008.

Some argue that rates are currently so good, that shipping’s efforts to decarbonize are also likely to slow. That’s because such high earnings offer little incentive to put ships in dockyards and carry out work that would make them ready to burn cleaner fuels, according to DNV Maritime.

Even this week, as shipowners and brokers discussed the outlook for the market on the Mediterranean coastline, Houthi rebels continued to fire salvos of missiles at vessels in the Red Sea.

One Greek owner said he expects that the impact of the attacks on shipping in the region could be felt even more acutely in the second half of the year for container and bulk commodity ships as those fleets get even more stretched out.

That leaves owners bracing for a world that is more volatile for longer.

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Source: Bloomberg

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