Market sentiment and economic outlook are positive and in alignment for the first time in years, but just don’t expect shipping’s boom times to come back
When even senior Singapore government ministers — usually the most cautious of public speakers — admit to concerns over shipping markets, no one can dodge the reality that this industry is going through tough times.
Opening Sea Asia, the centrepiece of Singapore Maritime Week, on Tuesday, the co-ordinating minister for infrastructure and minister for transport, Khaw Boon Wan, admitted that he had been worried about attendance when the event was being planned because of market strains.
Now, however, in the second quarter of 2017, sentiment has turned for the better, and those fears of empty exhibition halls and vacant conference seats have been allayed. Prospects for the industry look better than they have for some time.
“Shipping is more than alive and kicking. There is spring in the air, and there is spring in the economy,” Khaw said optimistically.
While the economic outlook and sentiment in many shipping sectors is more positive than it has been for several years, such optimism needs to be tempered with a healthy dose of reality.
As equity analysts cannot stop themselves from telling us at the moment, fundamentals for the dry bulk and even parts of the container markets are firmer than they have been since at least 2014. Scrapping of boxships is at record levels, while the long tail of dry bulk newbuildings has declined nicely.
Crude tankers remain volatile and prone to Opec’s attempts to cut production, but at least they are trading profitably. Products tankers have been under pressure but the market is geared up to service emerging new trades.
As anyone with an experienced eye can see, many of the arguments about the prospects for individual sectors are much as they have been over the past half-decade: modestly optimistic if everything goes well. Sadly, much of that optimism has been misplaced, as many now know to their cost.
That is where matters appear more positive today. Last week’s spring meeting of world central bankers in Washington illustrated the improved outlook. The International Monetary Fund now forecasts global GDP growth this year of 3.5% — the first time for six years it has raised its forecast.
Piyush Gupta, chief executive of Singapore’s DBS bank, echoed the sentiment this week at the Sea Asia conference. With Europe, Japan and the US economies all robust, and China evading major turbulence, he is optimistic for this year.
Further upside may come from US president Donald Trump’s proposed corporate tax cuts and possible infrastructure projects. In the longer term, Asia’s growing middle classes will help fuel new demand for shipping services, Gupta argues.
Despite this modestly optimistic outlook, risks remain. China, although growing strongly today, still faces questions over how it can moderate its ballooning debt without triggering renewed instability.
Immediate political risks appear to have moderated, with the impact of Trump’s election and the UK’s Brexit vote being absorbed by markets, and France and Germany on course to re-elect traditional centrist political leaders.
An outlook of steady but modest economic growth should deliver a firmer grounding for shipowners and operators to trade their way through lingering debt overhang from any previous ill-judged expansion.
No one should get carried away, however. Few ¬people believe trade growth will accelerate again in the way it did as China industrialised over the past 30 years. That was a once-in-a-century phenomenon that will not be repeated soon.
The lack of easy money may benefit the growth of more sustainable shipping operations.
Investors willing and able to exploit marginal advantage from leaner operations and smarter trading — perhaps successfully utilising new technological applications — will have a greater chance of success.
If shipping is to move forward, more success in that direction will be vital.