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Two horsemen of the apocalypse

It’s too late to buy that VLCC. It’s far too late to sell anything, but you might want to try to cancel that open-loop scrubber installation. It might just not be too late to make an investment in hull cleaning equipment. Don’t put a passenger ship or a dive support ship into cold lay-up or you will discover the truth of the Ancient Greek proverb, “Once in lay-up, always in lay-up!” Think about what is needed to reactivate laid up ships and plan accordingly. So much for the obvious. What about the rest?

One thing that stands out is that people seem to want to avoid the recollection of plagues. We don’t mind remembering and thinking about wars, revolutions, invasions, volcanic eruptions and spectacular accidents involving lots of people dying, but we do seem to want to forget about two sorts of disasters – earthquakes and plagues. Perhaps we think that there is something a bit undignified about dying in one of them; perhaps we don’t like to remind ourselves that they are so very far outside our control. Citizens of earthquake prone cities don’t much like to talk about earthquakes, and nobody likes to talk about plagues.

Details of historical pandemics become rather vague. Pandemics often start off in China (the Miaozigou epidemic of about 5,000 BCE, which was altogether Chinese, the Antonine Plague of 165 CE, the Plague of Justinian, 541-2 CE, the Japanese smallpox epidemic of 735-7, the Eurasian Black Death of 1346-53, etc, unless they are typhoid epidemics, in which case they often start in India. And nobody knows where the ‘Spanish ‘flu’ of 1917-19 started, except it certainly wasn’t Spain. Personally, I favour the Etaples transit camp theory, in which case we can blame the British Army’s poor pig keeping.

We know a bit about these plagues, but not anything like as much as we know about the political, economic and cultural issues of the times in which they took place. Spanish ‘flu is said to have killed more people than the First World War – but nobody really knows. Those who survive plagues want to forget about them and to “get back to normal” just as fast as they can.

At this moment, the newspapers, the television, radio and social media pundits are all busy telling us that Things Will Never Be the Same. I think they are wrong. History suggests that people will want to get back to ‘the same’ just as fast as they can, and we will see a resumption of whatever we were doing before, with extra eating drinking and being merry, in order to forget all about this pandemic, just as our ancestors tried to forget the others. This suggests that shipping will be back to business as usual quite soon, and all that we must think about is investment timing.

Timing in deep sea shipping is largely a question of still having cash when nobody else has any, so the thing to do is to be around and see what may influence when shipping businesses may run out of money. One thing that tramp owners know very well, and liner, passenger and oil support owners sometimes forget, is Mr Micawber’s rule – “Income twenty pounds, expenditure nineteen pounds nineteen shillings and sixpence, result happiness. Income twenty pounds, expenditure twenty pounds ought and six, result misery!” Speed of application of this rule is vital!

There are, as we know, Four Horsemen of the Apocalypse, the first horseman is Pestilence, followed by War, Famine and Death. Well, we’ve got Pestilence.

As shipping people, death isn’t much use to us, but war and famine used to be very handy for freight rates. War isn’t around on a scale big enough to help freight rates – at least, not yet, and war on a big scale has been a bad idea since the 6th of August 1945, but famine will be along any minute. Across Europe and North America, crops are being ploughed in, eggs and milk are being poured away and the world’s biggest pork processor, responsible for 5%of the pork eaten in the US, has just shut down because too many of its work force have gone down with Covid-19. So we have panic buying, our televisions show us the curious sight of people in the US queueing for food banks in their cars, but Covid-19 hasn’t really hit places where most people live hand to mouth from subsistence farming, as opposed to living from pay check to pay check, yet. It will, though.

Logic tells us that crops which can be planted, tended and harvested using mechanical equipment on a big scale are going to be less affected by a shortage of people than are crops which need a lot of manual labour. It has been a truism for decades that you don’t ever make a ship investment decision based on the grain trades, because they are normally unpredictable, but I think that in today’s circumstances we may pencil in some more ton miles for grain.

Logic also tells us that, across the world, regular maintenance of all sorts of things is being deferred, and when the coronavirus outbreak is contained, as it will be, there will be a rush to do the maintenance and repairs that have been deferred, and this will happen before people make big new investments.

Lastly, this is a very odd recession. Recessions in shipping usually start with importers being unable to open letters of credit because the banks have run short of cash. This one started differently, but we may be reasonably sure that as it ends, people will have trouble opening letters of credit. There will be demand but financing that demand will be harder. In other words, money will be in short supply, and when there is a shortage of something, the price goes up. The price of money is called interest. Gearing is not going to be good.

Keep calm and carry on.

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Andrew Craig-Bennett

Andrew Craig-Bennett works for a well known Asian shipowner. Previous employers include Wallem, China Navigation, Charles Taylor Consulting and Swire Pacific Offshore. Andrew was also a columnist for Lloyd's List for a decade.

Comments

  1. Wonderful overview, Andrew. I would add only that our eyes still need to be on the environmental impact ball. In addition to your reference to biofouling, we need to get busy on containing CO2. IMO remains committed to meeting its 2023 commitment for releasing a reduction strategy, not to mention that IMO2020 is already here.

    This pause in ordering new ships may be just the ticket, as right now shipowners are unsure WHAT to order. Where would you put your money if you didn’t know what fuel will be used in 10-15 years? What bridge configuration is optimal or the necessary crew accommodations? There are many uncertainties!

    But as you know, this industry thrives on risk! And this industry WILL thrive!

    1. Thank you Carleen. You make a very necessary point.

      The very first thing that this industry has to do is to STOP GREENWASHING. The world’s media have started to notice absurd figures for emissions, they are asking where the sulphur removed by funnel scrubbers goes, and they conclude that hardly anyone in shipping can be trusted.

      As an industry we have nil, zero, zilch political power. The unspeakable fools who think it is clever to lie about such things are destroying the remaining shreds of our reputation.

      We must stop tolerating the liars and the cheats and police ourselves or other people will do it for us.

  2. Nice to find a piece from you after prolonged silence, you are always thought provoking and a joy to read. Agreed to every bit but the last two lines.

    Base interest rates, me thinks, are bound to stay where they are. Consider demographics (changing patterns of consumption due to generalised ageing), public finances and the accumulation of public debt, accumulation of corporate debt, zombie entities still operating based on the last wave of quantitative easing (no politician wants to deal with the fallout and the social consequences of their collapse), and you shall arrive at the same conclusion.

    I would brace my self for a long period of abnormally low or even, (irrationally) negative interest rates. If one has the business case, i would not see why gearing would be a problem for the next, say 5 years.

    1. Geo – I think you may very well be right. I was arguing on the basis of the precautionary principle. If governments do nothing, rates will rise; if they act as you foresee (and it’s highly likely that they will) then rates will stay low.

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