OPERATING IN A FOG THAT THREATENS

In an environment of the continuing health crisis caused by the pandemic, rising inflation and a war in Europe that threatens to spread beyond the Ukraine in light of the irrational actions of Vladimir Putin, we are faced with a growing fog that threatens the world economy.

Economists and political pundits continue to argue over the potential for a recession and the timing thereof as economic indicators remain vague. Inflation is up but Central Banks and politicians promise us that this is temporary, industrial production is robust in the U.S. and weak in the EU, consumer demand remains undaunted in the U.S. and in the EU whilst still positive growth is very low.

The war in the Ukraine has moved into the third month as the Russian invasion is not making much headway but resulting in nothing less than the slaughter of civilians and massive troop losses by the Russians. Global markets are reacting with massive commodity price increases further fueling inflation. Add to this the enforced lockdown of Shanghai and soon Beijing the already struggling supply chains will get even worse as vessel congestion expands around the globe.

Port activities are being disrupted with Coronavirus induced illnesses hitting labour and sanctions on shipping that are causing the re-routing of ships, and sanction busting by changing ships’ registries as well as vessels turning off their AIS. Ports and terminals are also having to deal with ever increasing numbers of ultra large containerships taking up more quay space and time.

The net result of this will ultimately be reduced demand for shipping as commodity volumes decline, particularly to China as their industry is being shut down with the “Zero” covid policy. We see reports that container exports from China to Europe and North America are down by some 30 to 40 per cent due to this policy but the reality remains vague.

In the meantime major container shipping lines continue to place newbuilding orders like there is no tomorrow, as if the huge 2021 profits are burning holes in their pockets. It is not clear where all this will lead to as many lines have reversed their efforts to integrate vertically and are back to expanding vertically into freight forwarding and airfreight.