The wider geopolitical picture

There’s no denying that global events can have substantial ramifications on maritime shipping. Whether it be financial crises, international relations or the policies of world leaders, history has shown that a non-trade-specific world event or development can have a profound effect on the movement of goods. A recent paper from geopolitical intelligence platform Stratfor, Why Geopolitics Matters to the Global Shipping Industry, has hammered home the importance of world affairs when it comes to the the maritime industry.

“Global shipping is a behemoth of an industry,” Stratfor’s analysts explain. “It has a direct and indirect economic impact of more than $400bn annually, and more than $4tr worth of goods move by sea freight each year. But it’s also a delicate sector, closely tied to the health of major economies, prone to cyclic swings and vulnerable to the world’s reaction or overreaction to any number of political events.”

The paper states that shipping is making progress towards a financial recovery this year but that uncertainty regarding both security and trade relationships will be exacerbated by a number of other limitations. A “downward force” on growth in shipping will come in the form of the remainder of the world’s response to US trade policy, amid continued uncertainty around Iran — aside from the US and China coming to an initial agreement concerning trade. What’s more, slower growth could result from new environmental regulation standards, growing fuel prices and the introduction of bigger vessels.

Geopolitical clout

Stratfor explains that since the beginning of this year, “things have been looking up” for a recovery for the global shipping industry.

“With supply and demand in better balance, idle capacity figures … have dropped from the 20162017 winter high of 8.8% to just 1%,” the paper says. “The sector continues to consolidate … and global growth projections are largely positive.”

However, it goes on to say: “As capacity grows in the wake of new, larger ships, the geopolitical uncertainty caused by major events — US-China trade disputes, sanctions related to Washington’s position on Iran and new environmental standards — threatens the industry’s nascent recovery.”

The China-US trade disagreement, possible US sanctions on Iran and new environmental regulations are explored in greater detail in the document.

“Though the US and China have hit the pause button in their ongoing tariff threats over trade, the details of the deal are vague,” it says at the time of publication in May. “With so many potentialities still in play regarding trade, the shipping industry is at risk of having to respond to a number of different outcomes.”

The paper notes that the $50bn of tariffs officially announced by the US and China’s equal retaliatory levies would affect bulk shipping in a regional manner. Even when soy and steel are taken into account, the calculated trade loss would only be a fraction of the world’s dry bulk market, it says, but it also claims that “general uncertainty can magnify perceived reality”. As for potential sanctions on Iran from the US, Stratfor argues that if the latter eventually reinstates sanctions on the former, already-rising oil prices may increase even more. This in turn could push up the prices of bunker fuels that vessels use. The document notes that in Q3 2018, there will be US foreign policy developments on security and trade with both China and Iran and that the overarching geopolitical threat connected to these and other events could quickly turn into “a tipping point for vulnerable sectors, particularly global shipping”.

As for the International Maritime Organisation’s approval of a strategy, in April, to get rid of carbon dioxide emissions completely by 2100, the paper claims: “The new plan, along with plans to reduce sulphur emissions by 2020, will require additional spending from shipping companies. Any new wave of ship orders and deliveries, to compensate for new fuel requirements or in response to positive indicators, could result in the industry facing another oversupply problem.

“Beyond economic drivers, uncertainty derived from US foreign policy towards China, Iran, North Korea or even Europe could serve to push the shipping industry off course, and an inability to react to geopolitical developments with thoughtfulness and versatility may deliver a push the sector wasn’t looking for,” the document concludes.

Current affairs vital

The opinions of the Stratfor paper are similar to some of the sentiments given by BIMCO chief shipping analyst Peter Sand in a presentation concerning the dry bulk shipping market in 2018 and beyond. Mr Sand’s presentation, delivered at TOC Europe in June in the Netherlands’ Rotterdam, claimed that for dry bulk, 2018 is viewed “as the year of opportunity”. According to the presentation, “China is ‘all that matters’ — as the rest of the world either imports a steady amount of dry bulk commodities or slows down its imports”.

As for the global economy, the presentation argued that it is getting nearer to its full potential and that world GDP growth rates are predicted (by the International Monetary Fund) to hit a peak in 2019 and fall towards 2023. However, world trade volume growth (concerning goods imports) is anticipated to increase from 5.5% last year to 5.7% in 2018 and decrease to 5.1% in 2019. The challenge for the shipping industry, the presentation claimed, is “to understand that this is as good as it gets”.

The presentation was given the day after US President Donald Trump met with North Korean leader Kim Jong-un in Singapore. Mr Sand said that the discussions were “certainly affecting the world of shipping, because the world of shipping is enjoying globalisation”. With the US-North Korean relationship a closely-monitored one across the world, it remains to be seen if this will combine with Stratfor’s identified geopolitical factors to impact upon the maritime sphere.