March 13, 2016

Rainbow Swans

If one sees a major and unpleasant event approaching, it can't really be called a black swan can it?


To wit:

The London Telegraph has an overview of all the things that are going wrong at once in the world economy.
 Two of the world's three major central banks have slashed interest rates in to negative territory.  


We've noted the decline in the shipping industry (focusing particularly on the Baltic Dry Index) for a while. This BBC article points out the scale of the issue.  
 And here's the thing - the dry bulk index - also called the Baltic Dry Bulk Index - saw a peak of 11,000 points in May of 2008, just before the global financial crisis.
This year it has hit fresh record lows and skirted around the 300 points mark.
What this tells you is that global trade is nowhere near the levels it was pre-2008.
So the 'green shoots of recovery' you hear policy-makers and economists talking about, that's not being seen on the global shipping routes or lanes.  

More on global shipping here:
 Entering January 2016, Chinese imports fell for 13 consecutive months and declined by more than 20% between 2014 and 2015. Bulk shipping will be one of the many globally affected industries. Most experts look for continued weakness in the foreseeable future. The Baltic Exchange's main sea freight index, which charts the rates for dry bulk commodity shipments, hit an all-time low in December 2015.
 
According to the article, 2016 is expected to be worse. 
The same article looks separately at the three main aspects of the shipping industry. Generally, dry bulk refers to commodities like coal, steel and other raw materials. the container sector, is as one would expect focused on shipping containers (though things like RO-ROs shipping cars would be included as a subset. The thing about container shipping is that it deals in manufactured goods. There is not a 1 to 1 correlation with dry bulk shipping since a lot of dry bulk cargoes go to major heavy industries and infrastructure projects, so the downturn in China's construction boom does not necesarily portend a...oh wait...  
 Containers were unprofitable every year between 2009 and 2014, per McKinsey & Company, a market research company, and 2015 was even worse. Bulk carriers receive a lot of headline attention because they carry major commodities such as steel and iron, but container purchases and delivery rates are arguably more indicative of broader economic conditions. 
 Those economic conditions would seem to suck.

Tankers obviously ship chemicals, of which petroleum products are the most common. The fact that the drop in oil prices has helped to moderate the decline in oil consumption and the fact that tankers can make some money being used as anchored oil storage tanks has meant that tankers are the least disastrous sector of the shipping industry.

The portents are not good, but that means that these problems at least are not in any way unexpected. So prepare yourselves. 





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