Geopolitical events push shipping earnings to 15 year high

Accelerating economic growth, improved demand, and the impact of Red Sea diversions have combined to boost shipping markets across the board in the first half of 2024.

Adam Kent, Managing Director of MSI, about the overall macro-economic picture for shipping so far in 2024 says: “I think what we've seen is clear evidence this year, during the first half of the year, that the economic growth has accelerated, which is obviously a positive sign, and we do expect this positive growth to continue, I would caveat that isn't guaranteed.”

He notes that the PMI for both manufacturing and services has been positive territory for the first time since mid-2022 although recent PMI data is a bit weaker. “So, while we expect overall positive period of growth, we do see the US potentially slowing, and it will be a bumpy ride.” China has performed more strongly in the first half of 2024 than expected but that is in comparison to a generally poor 2023, and the construction sector remains weak.

“We remain cautious again with the Chinese outlook, especially more on a structural basis. We've also seen the ramping up of US trade tensions with China, and of course, that could further escalate depending on the US election later this year,” he explains.

Looking at seaborne cargo demand MSI expects 2% growth this year with all sectors contributing to this. “It's been the first year for the last four years that we've actually seen all sectors posting positive seaborne cargo growth. On the supply side, I would say that generally for most of shipping, the supply side remains conducive to market balances,” Kent says.

The orderbook for shipyards now stretches out three to four years limiting the immediate impact of new contracts and for tankers and bulkers the supply side picture remains positive in the coming years.  “But of course it's the events that we're seeing around the world that are shaping a lot of the shipping markets and sort of helping drive the markets on to levels where we would struggle to anticipate this time six months ago,” he states.

The Red Sea crisis has been front and centre of this for most of the industry increasing ton miles although the impact of Cape of Good Hope diversions to avoid Houthi attacks in the Red Sea varies depending on sector, sub-sector, and individual owners. “So, it's not the case that every shipping sector is avoiding the Suez Canal.” It has, however, combined with other positive market factor to produce strong, significant movements in earnings and vessel values compared to a year ago across all parts of shipping, excluding LNG.

“Earnings now for some sectors of shipping, are the highest they've been for the last 15 years. So, shipping generally, across the board, is doing well as we approach the second half of 2024.”