After feeding us on a diet of false promises and economic recovery for years, suddenly economists and politicians of all hues have started to change their tune. About time, too, we’d say, as few believe their platitudes and now question their ability to turn the super tanker around. So woefully inept are many of our ‘leaders’ and ‘experts’ that some have yet to grasp the glaring reality.
This week we’ve had to live through another round of Sino-US trade negotiations, with too many hoping for a proper breakthrough because after the 1 March deadline tariffs on goods imported from China into the United States ratchets up to 25 per cent. At the time of writing, we have no news on the subject, but somehow I think we’ll probably be disappointed.
Those organising the shipping of their exports cannot wait, as ploughing through great oceans takes weeks – and goods might arrive after current trade deals have expired. These people are voting with their feet, and their wallets, slashing the price they are willing to pay for international transport. Because the number of cargo ships is limited and vessels take years to build, supply is inelastic while demand fluctuates far more. This explains the sharp price swings in this week’s charts.
The Baltic Dry Index is the global benchmark and, because it measures the cost of ferrying raw materials, is considered a leading economic barometer. Three sizes of ships are used and 23 different routes costed. Our weekly chart shows the slow but steady increase in daily time charter rates from a record low in 2016. The rally stalled suddenly late last summer, and slumped through trend-line support in early January. Although there is secular chart support at the psychological $500 area, because bearish momentum is at its strongest in four years, we’d allow for a drop to the $350-$400 area.
As per classic Dow Theory, if alternative and similar indices exist, one should look to these for confirmation of our negative outlook. Baltic Capesize, Panamax (the biggest ships that can squeeze through the Panama Canal) and Supramax (50,000 to 60,000 deadweight tonnage) are constituents of the Dry index, so it’s not surprising their charts look like the benchmark. But look more closely and you can see that Capesize charges had been selling off for several months before this year started, yet we are only today back down to 2017’s low. Generally, price action here is more contained and moves less dramatic, possibly because this is a flexible type of ship that can access a wide variety of ports.
Its smaller cousin, Handysize (40,000 to 50,000 DWT) went into free-fall last month, prices having been very stable at around $600 over the previous year.
The Baltic’s Dirty Tanker index measures the cost of transporting Crude oil, while the Clean Tanker index ships petroleum products. A chart with lots of gaps underline the sudden shifts in supply and demand. The record low at $524 was first set in 2009, and was matched in 2016. We are still a way off that point but I think there’s a good chance we’ll test it again. In the longer term, the outlook for these vessels is more precarious than our other examples as renewable energy, especially wind and solar, supply more households.
