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Political and economic risk blindsided the market in the first six months of the year, we need to be smarter in H2, argues Thomas Zaidman, managing director of Sagitta Marine.
Shipping has a herd mentality when it comes to the news; running towards the light when the story is positive and holding back when it appears bad. The trouble is that in the era of the perma-crisis in which we find ourselves, this is a far too simplistic response to be instructive.
The challenge of the current business environment is the way it combines an uninspiring macroeconomic picture with short-term volatility of such magnitude that it can prompt near-paralysis.
I would argue that the industry cannot thrive unless it decides to play the cards it has in hand, rather than try to second-guess a future direction driven by a news agenda that reacts to every speculative proposal posited as new trade policy.
The market responses to tariffs, USTR port call fees, the risk of sanctions, and corporate interference have been too knee-jerk to properly determine the scale of the risks and their likely impact. Often, the market spikes, only to fall back just as quickly.
Some market calls have leaned heavily on the conflict-premium thesis, often overlooking broader fundamentals. Everyone is an expert in hindsight, but the short-lived flare-up of violence between Iran and Israel could have been seen in a broader context with a bare minimum of analysis.
Instead, it was seen as all of a piece with the situation in the Red Sea because of the apparent risks to passage through the Strait of Hormuz.
The destabilisation of the global consensus is happening as much, if not more, in the Black Sea, the Baltic, and Red Sea. These are threats to life as well as to assets and trade flows. They deserve our attention and the efforts of our politicians to find lasting solutions.
Meanwhile, economic policy is being used as a reality distortion field, and very often it is just that, a distortion, not a genuine change of position or policy, that is being threatened.
For example, the first time that the US announced tariffs on Mexico, the currency fell. The second time, the reaction was much more muted. Yes, trading partners have options; no, such arrangements are not zero-sum. You don’t swap out industrial capacity, supply chain, and capital flows on the basis of threats, or if you do, you risk losing far more than you gain in the long run.
Narratives driven by a desire to make headlines rather than position genuine and positive reform are taking up far too much space in our heads.
The impact of the political uncertainty has been clear in the small dry bulk market this year. Plenty of charterers decided that the best strategy was to do nothing, and they largely took the first quarter off. Only as the year progressed did it become more obvious that US trade policy is not just transactional but hugely performative.
The argument that shipping is a servant of globalisation is unarguable, but that does not mean that we are unable to make our own decisions and take our own advice?
Much can still be learned from prior US administrations. The main takeaway is that deals are done, regardless of the posturing in public. China is buying US grain right now, but it can just as easily buy Brazilian or even Argentinian. This highlights the importance of anticipating demand shifts that are driven by economics rather than politics.
Grains might not be as visible a target as semiconductors or natural gas but the point is the same; the noise around ‘what-if’ is just a distraction on the way to getting the business done.
Arguably the dry bulk market has learned its lesson in the first six months of this year. Doing nothing is not an option, nor is constantly trying to second guess unpredictability rather than accepting it as a fact of life and positioning your portfolio accordingly.
The market is following an established trend by becoming more reactive and short term, but this doesn’t mean it can’t be traded by operators who understand the fundamentals and how to manage risk.
The underlying dynamics haven’t changed; only the intensity. Risk remains, but so does opportunity . The defence that there is too much uncertainty to fix, invest or expand is not going to hold much water very much longer.
If the consensus is that shipping cannot function successfully in an era of politically-driven economic uncertainty, then perhaps it’s time to be the contrarian and take the other side of that trade: savvy operators who embrace disciplined risk management may find opportunity in this volatility.
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