May 2007

“And since there’s in this Old World still
Much good but much less good than ill
Then I’d do as a wise man would
Prepare for ill and not for good.”

I know this is a rather over pessimistic stanza from the great A E Housman, but there is a message in it for today’s World and specifically the Maritime World.

We have all been enjoying a splendid market – past its peak perhaps, but good nevertheless. The high rates have been accompanied by a mass of ship deliveries and new orders. Container ships are entering the market at a pace far exceeding the market demand forecast. Dry bulkers are changing hands at a brisk old pace ($47m reported recently for a 1998 built Panamax) and lots of newbuildings. Some brokers are reporting an acute shortage of capesize bulkers giving rise to record charter rates until 2010! All this is splendid news but let us remember that this activity relies on World trade continuing at its present breathless pace. But will it, or are there signs of a major slow down?

Though no economist/monetarist myself, I am impressed by certain fundamentals which point to a serious increase in inflation just ahead. The Pound Sterling has already passed $2. This increase is due in large part to the old law of supply and demand. There is a genuine shortage of what the World seeks to buy, be it London housing or works of art. Thus there is a major inflation of asset values. The Korean Won has appreciated against a depreciating Yen (remarkably newbuilding prices in Japan are becoming lower than those in Korea).

The West has been enjoying unprecedented prosperity and low inflation supported, let us be clear, by the racing Chinese economy which continues to offer “cheap” manufactured products, the fruit of low labour costs. But recent figures show that inflation in China is fast gaining ground indicating already a figure of 3.3%. Thus the world may not for much longer be able to rely on China to counterbalance inflation.

Energy – now unhappily strapped to ecology and carbon emission concerns – is of huge concern to all. Many sources of supply are uncertain. Nevertheless demand remains unshakeably high to the benefit of tankers. This market has the unique benefit of the increasing distaste for, and phasing out of, single hulled vessels. There is rather less over ordering in this category than most others.

What does all this amount to? I do not much favour my “Cassandra” sobriquet but I am bound to say, for the umpteenth time, that in my view it is a time for prudence. A real depression is not imminent but there should not be the assumption that growth will irresistibly continue; indeed it will definitely slow down as interest rates climb.

I hope my friends in all the Maritime Industries will act with great care and set aside provision against the lean years. Remember the negative elements building up affecting shipping such as terrorism, ecological demands, directives from Brussels(!) etc etc. In fact it is worth re reading my quote from AE Housman which heads this little homily.