Will the Year of the Dragon spring some surprises?

Pierre Aury on the four big topics shipping needs to be aware of in the coming months.

So where is the market headed to this year? Sorry to disappoint you but we will not be answering this question. Instead we will look at four topics with two of them likely to have an impact on the shipping market and two highly unlikely to have any. These four topics are a financial crisis, the geopolitical situation, global warming and the AI ‘revolution’.

It is debatable whether there is an AI revolution or not but what is not debatable is the fact that AI is making the headlines on a daily basis with claims that it is going to solve all of our problems. In shipping however, AI is not about to create new cargoes nor is it about to shrink the fleet so it will have no impact on the shipping market. The only market which will be impacted by AI will possibly be the shipping job market with new skills required and some job losses to be expected.  

Now on to global warming which is starting to shape our daily lives as the Panama Canal is reminding us. But what is really shaping our daily lives in the short term is the ongoing and so far unsuccessful decarbonisation of our economy which will continue unabated. Why indeed change policies that are not working. So expect more ill-conceived policies to be implemented by our politicians but none of these are likely to impact the shipping market neither in a bullish nor a bearing way at least short term. They might just make things more expensive. I give you the EU’s wonky ETS as a prime example.  

The geopolitical situation is probably worse than it’s ever been since the end of World War Two. There is a real risk of an extension of the Israel-Gaza war. Israel is fast losing the international support it had back in October last year and could be tempted to get this support back in the context of a wider conflict. At the same time, Iran is in the midst of a deep economic crisis having seen its GDP shrink 40% since 2012 and could be tempted to apply the diversionary theory of war and territorial conflict according to which unpopular leaders generate foreign policy crises to both divert the public’s attention away from the discontent with their rule and bolster their political fortunes through a rally around the flag effect. 

Now throw in the mix the fact that 5% of the US GDP is related to defence and arms sales (as opposed to 2.5% for the EU) and you have a case for another party having an interest in an extension of the conflict which will then have an impact on the shipping market. Bullish or bearish we leave it to you to decide.

We will finish with the plausible scenario of a financial crisis happening in the short term. The main reasons for the 2008 great financial crisis were too much liquidity created by too much debt, banks being too big to be understood by the regulators and a trigger, the US subprime market. Fast forward to 2024 and the amount of debt has increased by 87% while over the same period, world GDP has increased by 64%. So both in absolute and relative terms the debt situation is much worse today than it was back in 2008. Regarding the size of banks, suffice to say that a lot of banks have disappeared since 2008 (Bear Stearns, Lehman Brothers, Merril Lynch, Crédit Suisse…) making the remaining ones much bigger in relative terms. We leave it to you to find out what could be the trigger this time.