Sunday, December 5, 2021

Shipping - Markets excesses gone or something different?


 

Shipping costs have risen, and it is not just for containers. The cost of dry bulk as measured by an index created for the BDRY shipping ETF has increased by close to 400 percent this year at the high only to fall by 50 in a month with the poorer economic news from some large bulk importers. Clearly this is a China play since it represents over 40 percent of dry bulk imports. Fifty percent of dry bulk shipping is associated with coal and iron ore. The market has retraced some the decline although it is now facing the Omicron-COVID threat. 

Dry bulk rates represent a high beta reflection of global trade and China demand for raw materials. Container rates represent a high beta trade on finished goods. Of course, shipping rates are closely tied with the ship building cycle, but this cycle is just a delayed representation of the trade cycle. While history suggests 2021 moves are exceptional and will not continue, the trade disruptions are unlikely to clear until a post-pandemic normality returns.

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