Tag Archives: Shipping

Understanding the Geopolitical Landscape in 2023… What It Means for Your Portfolio, by Chris MacIntosh

Buy companies that make ships. From Chris MacIntosh at internationalman.com:

Global Geopolitical Landscape

Howard Marks of Oaktree Capital put out a note to clients sometime ago, “I Beg to Differ” and the below paragraph in particular resonated with me.

First-level thinking is simplistic and superficial, and just about everyone can do it (a bad sign for anything involving an attempt at superiority). All the first-level thinker needs is an opinion about the future, as in “The outlook for the company is favorable, meaning the stock will go up.”

Second-level thinking is deep, complex, and convoluted. The second-level thinker takes a great many things into account:

  • What is the range of likely future outcomes?
  • What outcome do I think will occur?
  • What’s the probability I’m right?
  • What does the consensus think?
  • How does my expectation differ from the consensus?
  • How does the current price for the asset compare with the consensus view of the future, and with mine?
  • Is the consensus psychology that’s incorporated in the price too bullish or bearish?
  • What will happen to the asset price if the consensus turns out to be right, and what if I’m right?

The difference in workload between the first-level and second-level thinking is clearly massive, and the number of people capable of the latter is tiny compared to the number capable of the former.

First-level thinkers look for simple formulas and easy answers. Second-level thinkers know that success in investing is the antithesis of simple.

Here is a brief example of how to employ second-order thinking with Taiwan

It is worth considering a lesson from World War 2 because it’s vitally important, and — as far as I can tell — not only do most Americans not know it, but the current bunch of podium donuts in the US don’t appear to either.

Continue reading→

Suez Canal Megaship “Partially Refloated” Ahead Of US Navy Assessment, by Tyler Durden

Here’s a comprehensive, up-to-date account of the ship that’s blocking the Suez Canal. From Tyler Durden at zerohedge.com:

Here’s today’s overview of the continued logjam at the Suez Canal:

  • Ever Given Partially Refloated At Stern
  • At Least 20 Vessels Carrying Livestock Stuck At Canal
  • IKEA Warns Containers Filled With Goods Blocked By Suez Crisis
  • Vessels Already Diverting Course from Suez Canal To Cape Of Good Hope
  • US Navy Arrives Saturday To Assess Ever Given
  • 300 Vessels Waiting To Traverse Canal
  • Tanker Rates For Suezmax Vessels climb to $17k Per Day
  • Suez Blockage Results In Rising Container Prices From China To Europe
  • Tugboats And Dredging Ships Were Unsuccessful In Refloating Ever Given
  • Bloomberg Report Process To Refloat Ever Given Could Take Until Next Wednesday
  • Shoei Kisen, The Japanese Owner Of Ever Given, Aims To Dislodge Vessel From Canal Bank By Saturday
  • Suez Canal Authority (SCA) To Cooperate With US To Refloat Ever Given

* * *

Update (1654): So just how stuck is Ever Given?

The Suez Canal’s engineering documents show a cross-sectional diagram of the channel where the container ship is stuck.

An overlay of the container ship and the channel’s cross-sectional piece suggests the vessel is more stuck than what meets the eye via ground-based footage and satellite imagery.

Continue reading→

Trucking Booms, Heavy Truck Orders Soar, Shippers Grapple with “Capacity Crisis”, by Wolf Richter

You didn’t see too many headlines like this during the Obama administration. From Wolf Richter at wolfstreet.com:

“Veterans in this industry are saying this is the best freight market they have ever seen.” But shippers struggle with rising costs.

Orders for Class 8 trucks – the heavy trucks that haul trailers across the US – surged 114% in May, compared to a year ago. With 35,200 orders, it was the highest May on record, according to transportation data provider FTR. Order volume over the past six month averaged nearly 40,000 units a month, “volumes never seen before in the industry.”

There are winners and losers in this transportation boom that has followed the “Transportation Recession” between March 2016 and April 2017, when shipment volumes by truck, rail, air, and barge had dropped to the lowest levels in years. During that time, trucking companies slashed orders for Class 8 trucks. Truck manufacturers – and the companies that supply them, such as engine makers – responded with layoffs.

But this is history. In April, freight volume by all modes of transportation surged 10% compared to a year earlier, according to the Cass Freight Index, which pushed the index to its highest level for any April since 2007. And among the winners are truck manufactures that are getting inundated with new orders.

“Class 8 orders exceeded expectations again as fleets order in huge numbers attempting to keep up with burgeoning freight demand,” FTR explained.

This chart of Class 8 truck orders also shows that orders are seasonal, and a decline from March to April and May is typical:

The chart below shows the percentage change of Class 8 orders compared to the same month a year earlier. Note the transportation recession when orders plunged year-over-year, as the industry was reeling, and then the surge in orders with year-over-year spike of 158% in October 2017:

To continue reading: Trucking Booms, Heavy Truck Orders Soar, Shippers Grapple with “Capacity Crisis”

Done in by Overcapacity, Stagnant World Trade, and China, Korean Shipbuilders Collapse on Top of Taxpayers, by Wolf Richter

Most SLL readers are probably not too interested in Korean shipbuilders, but this article offers a disturbing picture of what depression in a significant industry looks like. From Wolf Richter at wolfstreet.com:

Orders plunge 87% from an already terrible 2015.

The ravaged shipbuilding industry in South Korea, deemed too big to fail, is getting its largest taxpayer bailout yet, totaling $9.6 billion, on top of the bailout funds already handed out last year, and on top of another $9.6 billion this year to bail out state-owned banks that were getting slammed by defaulting loans extended to the shipping industry.

Their problem: according to trade ministry, cited by the Wall Street Journal, orders for new ships to be built in South Korea have collapsed by 87% over the past nine months from the already terrible 9-month period last year, to almost nothing.

South Korean container carrier Hanjin was allowed to collapse in August. It “shattered the complacency” that TBTF carriers “are immune to failure.” It is now getting chopped into pieces to be sold off under bankruptcy court orders. Its rival, Hyundai Merchant Marine, was bailed out and restructured earlier this year. Other carriers around the globe have been sunk by two years of excruciating low shipping rates, triggered by rampant overcapacity and stagnating world trade. Larger carriers are consolidating to survive. Just on Monday, Japan’s Big Three – Nippon Yusen, Mitsui O.S.K. Lines, and Kawasaki Kisen Kaisha – announced that they would merge to form the world’s sixth largest container carrier.

These carriers have stopped ordering ships, and many have canceled orders, and Chinese shipbuilders have muscled into the market years ago to grab share by slashing prices, and they too are going bankrupt.

But the shipbuilding industry is special to South Korea, a country whose economy depends on exports. The world’s three largest shipbuilders by erstwhile order volume are Korean: Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering, and Samsung Heavy Industries. In 2015, the industry accounted for 7.1% of South Korea’s manufacturing jobs and 7.6% of exports.

The beleaguered Big Three have already sold noncore assets and sloughed off employees as part of prior bank-led restructuring plans.

They’re dealing with terrible economic dynamics. Global orders for ships peaked in 2007 at over 90 million compensated gross tonnage (CGT), of which about one-third went to Korean shipbuilders. Orders crashed during the Financial Crisis to a low of 18 million CGT in 2009, then recovered. In 2013, orders maxed out at 60 million CGT, still down 33% from the prior peak. Those were the good times.

In 2016 so far, orders have collapsed to only 9 million CGT, according to the Wall Street Journal. That’s about half of the orders during the worst part of the Financial Crisis. And South Korea’s share of this pittance in orders has fallen from one-third to just a tiny sliver.

So on Monday, South Korean Finance Minister Yoo Il-ho announced another big bailout program: to help the shipbuilding industry deal with the “order cliff,” the government would directly order vessels and also provide financing for shipping companies to order vessels. In total, this would generate orders for 250 vessels through 2020, valued at 11 trillion won ($9.6 billion) funded by the government.

But these ships won’t be the big traditional money makers, such as large containerships and dry-bulk carriers, of which the world is already vastly oversupplied. Instead, these will be vessels for the fishing industry and for small shipping companies, along with ferries, patrol boats, warships, and coastguard vessels. The hope is this will carry shipyards into the next glory period, when world trade and shipbuilding would resurge.

To continue reading: Done in by Overcapacity, Stagnant World Trade, and China, Korean Shipbuilders Collapse on Top of Taxpayers


First Ocean Freight Rates Collapse to “Zero,” China Freight Index Plunges to Record Low, Bailouts Loom, by Wolf Richter

From Wolf Richter at wolfstreet.com:

The next stage of “Moral Hazard?”

The amount it costs to ship containers from China to ports around the world has plunged to historic lows. As container carriers are sinking deeper into trouble, whipped by lackluster global demand and rampant oversupply of container ships, they’re escalating a brutal price war with absurd consequences.

Maritime research and advisory firm Drewry (emphasis mine):

Recent news stories, backed up by anecdotal stories told to Drewry, report that carriers have quoted zero dollar freight rates to some forwarders on certain lanes out of Asia. Whether these are merely isolated cases or something more widespread is difficult to judge at the present time, but whatever the exact quantum, there is no denying the container rates are now close to the historic lows as seen in 2009.

The World Container Index, an average of spot freight rates on 11 global East-West routes connecting Asia, Europe, and the US, plunged last week to a record low of $666 per 40-foot equivalent unit container (FEU), down 73% from mid-2012!

The China Containerized Freight Index (CCFI) tells a similar story. It tracks contractual and spot-market rates for shipping containers from major ports in China to 14 regions around the world. On Friday, the index dropped 1.6% to 659.19, its lowest level ever!

It has plunged 39% from February last year and 34% since its inception in 1998 when it was set at 1,000:

Shippers and their customers are rejoicing for the moment. But the collapse in shipping rates – to “zero” in some cases, as Drewry reported – is taking its toll on the industry.

The risk of carrier bankruptcies – with the awkward side effect of stranded cargo – increases, according to Drewry, “the longer rates remain non-remunerative, while carriers will likely intensify practices such as void sailings in order to minimize the chance of that eventuality.”

To continue reading: First Ocean Freight Rates Collapse to “Zero,” China Freight Index Plunges to Record Low, Bailouts Loom

Oh, It’s Just Oil, by Karl Denninger

From Karl Denninger on a guest post at theburningplatform.com:

So it’s just overlevered oil producers that are in trouble, right?

Well, maybe not…

The shipping industry is facing its worst crisis in living memory as years of rapid expansion fuelled by cheap debt have coincided with an economic slowdown in China.

“We are now at the stage where people are struggling to remember an era when it was this difficult, we’ve gone through what it was like in the 90s, the 80s and the 70s, so expressions like ‘living memory’ start to apply,” said Jeremy Penn, the chief executive of the Baltic Exchange in London.

The Baltic Exchange has set shipping rates for more than two-and-a-half centuries and the situation its members now face is grim.

The “industry” built a lot of ships. Of course they didn’t do any of that with cash they had received from operations; no, they did it using cheap credit (gee, who made that possible?) predicated and “secured” with promises of infinite 10% annual growth forever.

Of course that can’t happen. It never has before, and it never will, because mathematics make it impossible. But that didn’t stop the people from getting the loans and building the ships — borrowing the money at uneconomic interest rates (near zero) that had essentially no expression of risk embedded in them.

But of course there was risk. Lots of it. And now that risk has become realized.

The big problem today is that many of these ships are operating at a literal cash deficit. That is, their daily lease rates are below the cost of the fuel and crew. This of course means that every day you operate said ship you go more broke.

The shipowners cannot simply retire the older vessels either, because they’ve all taken on too much debt. Debt that, if you break the ships, becomes unsecured because the ship is the security, and of course the bank won’t let you do that as it would expose their phony “mark to model” game on an “asset” that in fact has negative value.

Gee, where have we seen this movie before?

Who holds this paper? Good question. The next question is who wrote derivatives on it?

Go ahead, believe it’s all ok — just like you did after Bear Stearns. You do remember Bear Stearns, right? We haven’t had our Bear Stearns point in time yet — they’re a bit better at hiding the rotten fish this time around, at least thus far, and why not given that nobody went to prison for the abject fraud they ran last time.

We’ll see how that works out for ‘yall between shipping and oil.

Global Shipping Veers into Capital Destruction, by Wolf Richter

From Wolf Richter at wolfstreet.com:

Overcapacity “will be even greater than in 2009.”

“I would be open to the possibility” of reducing the fed funds rate “even further” and go negative, explained Minneapolis Fed President Narayana Kocherlakota on Thursday. Some folks just don’t get it.

Here are the results of seven years of global QE and zero-interest-rate policies:

Global demand is going from sluggish to even more sluggish. Emerging market countries are leading the way, it is said, and China is sneezing. Brazil and Russia have caught pneumonia. Japan is feeling the hangover from Abenomics. Even if there is some growth in Europe, it’s small. And the US, “cleanest dirty shirt” as it’s now called, is getting bogged down.

And here’s what this is doing to the shipping industry, the thermometer of global economic growth.

On one side: lack of demand.

Due to the “recent slowdown in world trade” shipping consultancy Drewry on Thursday slashed its forecast for container shipping growth, in terms of volume, to 2.2% for 2015 and lowered its estimates for future years. BIMCO, the largest international shipping association representing shipowners, issued its own, even gloomier report also on Thursday:

On the US West Coast, it’s been slow all year, starting with the labor disputes that weren’t resolved until mid-March. Since then, year-on-year growth in the second quarter was almost on par with 2014. But for the first half year alone, inbound loaded volumes dropped by 2% according to BIMCO data.

On the Asia to Europe trades, volumes were down by 4.2% in the first half of the year as 7.4 million TEU (Twenty-foot container Equivalent Units) was transported. Northern European imports fell by 3.6%, while the East Med and Black Sea imports fell by 4.8%.

Intra-Asia shipments remain a stronghold with ongoing positive growth around 4-5%, but the increased uncertainty surrounding the economic development in China adds doubt as to whether such a strong growth rate can be sustained for the full year.

At the same time, as shipping volumes struggle, freight rates have collapsed, and revenues with them.

“The severe lack of exports from China” is reflected in the China Containerized Freight Index (CCFI), BIMCO pointed out. The index, which tracks freight rates from China to major ports around the world, plunged below 800 in early July for the first time in its history (it was set at 1,000 in 1998). It’s currently at 814. The red line marks 800:

To continue reading: Global Shipping Veers into Capital Destruction