Shipping sector bloodbath
A shipping sector bloodbath has yet to play out despite global trade tensions ratcheting up. Despite the US administration’s impose tariffs on an additional USD 200 billion worth of Chinese goods, its multi billion-dollar sanctions on Iran and “a semi-truce” with the EU global shipping sector has somehow managed to shake off the impact of a global trade war.
So how has the shipping sector bloodbath been avoided despite this trade war turmoil?
Just how the shipping sector has avoided a bloodbath in this new protectionist environment is puzzling market watchers. In fact, if you look at the BDI Baltic Exchange Dry Index is hovering near its 52 week high. The BDI Baltic 1 year return to date is 19.24%.
First shots of a trade war were fired as early as March 22 with Trump’s $60 billion tariffs on Chinese high tech and other Chinese goods impacting 100 categories. So investors have known that is no longer political rhetoric a world trade war is underway and yet the BDI Baltic has been rallying since.
A shipping sector bloodbath has been avoided but that could all change
There is not any evidence yet showing that the shipping sector has been significantly impacted by the escalating U.S.-China trade war, according to the shipping association of one of the world’s most crucial port cities.
“In the container segment there is no clear evidence as yet, of any major impact,” Esben Poulsson, president of the Singapore Shipping Association, told CNBC. “One or two (shipping) lines have reduced their capacity somewhat, but there is no solid evidence of any great impact to date,” according to a report by the shipping association.
A shipping sector bloodbath could have been avoided due to the short-term impact of a trade war
A time-lag exists (approximately 6 months) between sanctions being publicly announced and those sanctions being implemented by the administration.
This time-lag between sanctions made and implemented creates a short-term boost to demand as traders rush to do deals before their goods are slapped with taxes by US customs at the borders.
So a shipping sector bloodbath could have been avoided due to this artificial short-term demand for sea freight service.
Euro news reports a rush to fill orders ahead of new US sanctions. Furthermore, China’s trade surplus with the US hits record (paradoxically) as exporters rush to beat tariffs. “Signs exporters were rushing shipments before tariffs went into effect in the first week of July suggest the spike in the surplus was a one-off.”
Indeed, that one-off spike in demand has prevented a shipping sector bloodbath. But don’t hold your breath, BDI Baltic heyday could now be over and what lies ahead, shipping sector bloodbath? Perhaps the BDI Baltic and the shipping sector could be a shorters delight.
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