THE shipping industry has effectively just hung a hastily scribbled sign on the shop door reading: “Out to lunch, back soon(ish)”.

Geopolitical turmoil has paused all strategic investment decisions for the moment. Not that there was much on the go anyway because regulatory uncertainty and full shipyards had already left most of shipping stalled in ‘wait and see’ mode.

The often-quoted suggestion that clarity from the International Maritime Organization next month will somehow unleash an era of green investment fundamentally misunderstands the regulatory process and its power to catalyse immediate commercial decisions.

But there is another reason why the industry is currently determined to do as little possible: the shipping markets have been defying economic gravity for a while now and they are — whisper it — headed for a painful crash-landing that everyone is quietly trying to ignore.

The course of the past five years has been driven by inefficiencies created by exogenous factors. And, to be fair, they have been plentiful and profitable. But that seemingly endless jet-stream of geopolitical turbulence from Covid and wars, to blocked trade arteries and profitable diversions has been masking the growing weakness on the demand side. So much so that everyone seems to have forgotten about basic supply and demand.

A drop in Chinese consumption failed to knock the tanker sector, thanks to a continued Houthi-induced detour that just keeps getting extended.

Last year, we saw around 3m teu of container capacity being delivered from (Chinese) shipyards and no scrapping. If it wasn’t for the fact that much of that tonnage was absorbed into artificially extended trading patterns, the market would have been in trouble.

As unstable as the world looks right now, there is a future where the current inefficiencies in the market unwind — and the strong likelihood is that they unwind as that full orderbook is being delivered.

The Chinese economy still isn’t firing on all cylinders and the stockpiling masking some of that from current dry bulk markets won’t last.

For those who were around in 2010-2015, this is all starting to sound worryingly familiar. And the longer the pent-up scrapping problem is left ignored, the harder it is going to be to simply remove ships from the market in a meaningful timeframe.

The industry may be on hold right now for good reason, but the external factors keeping markets afloat will not last forever. As soon as all of these factors are stripped away, it’s looking like an incredibly hard landing for almost every sector.

Richard Meade
Editor-in-chief, Lloyd’s List

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