Just as ship owners were looking to a long term recovery, especially in the dry bulk market, but also in containers, developments in the form of an escalating trade war, have brought these hopes to a crushing halt. In its latest weekly report, shipbroker Allied Shipbroking said that “the trade dispute saga continued over the past week, as new tariffs were put into force on Friday in both the U.S. and China and have already taken effect today morning. These recent tariffs are on USD 34 billion worth in imports on each side and have so far been imposed with minimal reactions from markets. The biggest concern now being voiced is with regards to a further escalation in this trade war, with propositions for additional tariffs to be placed on a further USD 200 billion worth of goods”.

According to Mr. George Lazaridis, Head of Research & Valuations, “it looks as though the first stage in this heated trade dispute has passed with a relatively mild reaction from markets due in part to the fact that most had already been taking positions months in advance. As things stand now most economists place a limited likelihood on the potential of further escalation taking place, giving the possibility of the additional tariffs on USD 200 billion of imports a 40 per cent chance of materializing. Nevertheless, it is still worth considering the impact a further escalation would have given the comments being passed around of late. With the U.S. having already threatened of an escalation of tariffs on almost all Chinese imports and at the same time open further fronts on global car imports and NAFTA, many are now quoting a final figure of affected goods close to the USD 1 trillion mark. This figure, if reached, would be equivalent to just over a quarter of the US’s total trade with the world and around 6 percent of the total global trade in goods.

Lazaridis said that “that could be quite a bite and would surely have detrimental nock on effects on economic growth figures across the globe. This is however the worst-case scenario and most of us are still holding hope that things will subside much before we reach anywhere near this point. Given however the way things have developed so far, such an outcome is not entirely farfetched and outside the realm of what is possible. Considering how these increased costs would be passed on to business and final consumers, the negative affect they would have on demand is self-explanatory. The overall bit out of global growth may well be minimal at an initial stage, but when taking into account that the positive signs being seen over the past couple of years have also been more minor as well, this would lead to yet another off-balance point for the demand-supply balance in shipping”.

According to Allied’s analyst, “obviously the first to feel the pinch would be containerships which had only just started to show signs of recovering, while bulk shipping would be quick to follow as the net effects take hold of the whole supply chain of the products impacted. On the plus side, shipping is probably in its best form to deal with any of these negative scenarios, with shipping capacity growth having been curbed and not set to see any notable increases in the near future for most of the main sectors. As an indicator of this it is worth pointing to the fact that the current dry bulk orderbook stands at 8.43% of the trading fleet in terms of number of vessels, a figure which can still be considered as one of the lowest noted historically. At the same time, even under these current favorable earning conditions being seen, the fleet has only increased by 1.15% over the past six months, while given the orderbook schedule for the remaining six months, there is not much expectation for this figure to increase by too much by the end of the year. If things do eventually turn south between the U.S. and its trading partners and tit-for-tat tariffs do take hold, this capped fleet growth rate could help sustain to a certain degree a relatively favorable market in terms of earnings”, he concluded.

Source: Hellenic Shipping News.