December 27, 2017


The worst is over, is the best yet to come?

Shipping industry analysts seem to agree that the end of 2017 marks the passing of an era: a near decade of recession in the major shipping markets and that 2018 is the beginning of recovery. The headlines seem to back this up but the opportunity to dig a little deeper with President of Clarkson Research Dr Martin Stopford, is always welcome. We caught up with him recently in Hong Kong and had a few questions about prospects for 2018 and beyond.

And while Stopford doesn’t demur entirely from the positive, it’s fair to say he has some reservations. “I made the mistake of allowing myself to be optimistic at a conference recently and it got reported rather selectively,” he says.

“What we can say is that 2017 is recognisably the trough and we are past it. We can at least think about the future and how long it will take the markets to work themselves out.” His reasons to be cheerful are the improving world economy with industrial growth reflected in trade and the retreat of the orderbook after years of oversupply.

However, anyone expecting 2018 to be a bonanza will likely be mistaken; Stopford thinks it will be 2021 before the markets achieve balance and remove the underlying supply surplus. “If that happens, it will have been the longest recession since 1847,” he observes. The fly in the ointment remains the fact that shipyards attract political and therefore financial support and rather than reduce capacity, continue to tempt owners with bargain prices.

And he has a refreshing take on the China story, pointing out that though the country remains critical to the health of shipping markets, it is not all about China in terms of sustained demand and improving rates. “I did a presentation on Asia earlier this year and since then I’ve thought about little else. By some definitions, it starts in the Middle east and goes all the way to Japan. It is such a diverse and positive area.”

At the same time the Atlantic basin is looking ‘very tired’ and despite the EU’s apparent recovery, mature economies will never show the same underlying growth trend. Taken together, this means “we should start talking about Asia rather than just China”.

China’s Belt and Road initiative is a big part of this because it re-establishes the China story at a networked level and we should also remember there are twice as many Asian people outside China as there inside it. “There are a lot of economies which can become very productive and we will see that grow,” he adds.

So what about downsides to the growth prospects; surely we can’t be entering another era of undisturbed long term growth? Stopford thinks that – with some obvious exceptions – the trend has shifted from big geopolitical events to financial ones.

“It seems nowadays that it’s not oil, but the financial industry that contains the biggest risk. We are moving from one financial crisis to another and it seems likely there will be another crunch because of the amount of money that’s still available. You can never tell the moment but there is a lot of nervousness across the markets.”

So if he had a few hundred million to invest in shipping, where would he invest now? Pointing out that all the best bets are contrarian he notes 2016’s successful punt on second-hand bulk carriers. Despite having had a torrid year in 2017, Stopford is still a fan of the tanker market, suggesting that if buying new, he would probably opt for coated Aframaxes that could be deployed in the gasoil trade in a couple of years’ time. “And the yards are so desperate you would probably get them at a discount. The only question is how you fund it.”

How ships get built in future is of course the analyst’s concern and he senses a shift in whereby, even though the spot market continues to be the primary source of tonnage, it is possible that Chinese companies that have cargo interests begin to place more orders, propping up the yards, financing ships then taking them on charter.

Stopford has been a vocal advocate of a return to the industrial shipping model, though one in which new management practices are applied to operations, with an accent on new technology. So far, it seems the industry is not ready to listen, beyond a few outliers.

The problem as he sees it, is that “there’s no incentive to improve what is just a beat ‘em up game. You buy assets, trade them and leave. If you have one or two people running your ships where’s your capacity to innovate?” Stopford has been working with some ‘big, respectable shipping companies’ and says some are better than others, but also observes that ‘good people leave’.

The legacy of applying neo-classical economics to shipping is that the more you try to change things, the harder it gets – and the more important it is to focus on projects with a chance of success. “Is it really relevant to run a Silicon Valley-style micro-services company alongside the real world model. In my experience, it won’t work.”

But he does have some practical words of advice for the superintendents and shipmanagers that make the industry tick. Could they be the catalyst that creates an opportunity for change?

Smart shipping is not about new ships he says, but rather about changing the way the business is organised, breaking the mould of vertical chimneys with the authority to push change though at an operational level. Even so the model is in many ways opposed to innovation. “Shipmanagers are the data gatherers but they will always struggle because they don’t control commercial side or own the assets and ultimately the pricing system sucks. Who pays for it is always the question you have to answer.”

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