How long will this recession last? Is this the worst recession ever? Will shipping continue to attract investors? All of these and other vital questions were raised and answered by Capt. S.R Patnaik, Managing Director, International Shipping and Logistics, FZE in his talk on “Dry Bulk Shipping-What Went Wrong and The Key Learnings” in The India Dry Bulk Cargo Summit 2016 organized by The Shipping Tribune where he contributed as one of the respected speakers. He talked about issues of concern, the history and the cycles in The shipping industry and much more,
“All of us here I think are from the Dry Cargo Industry and we are all facing tough market conditions and most of us know the reason is the huge supply and the demand slowly coming down. But what is really intriguing to know is that the way the volatility has been especially in the BDI going from 11,700 to 90 or the Brent going 100 to 29 or the commodity prices that fluctuated so hugely. So, this is something that has been bothering me which I am really surprised to know that how we could have such huge volatility in the Shipping market or the commodity prices or the bunker prices.
But these facts are already known to us, we know what is really going wrong, there is a huge supply side growth and the demand is flat but for us in this market we need to sort of consolidate our position, plan our strategies well, learn from mistakes which many of us have committed and plan well so that we can take the next upturn and face it boldly.
Before I start, a disclaimer: I have expressed my views and opinions in this presentation which you can take reference to but don’t use it for any of your business decisions or investment decisions.
We all have similar questions running in our mind: How long will this recession last? Is this the worst recession ever? Will the recovery be long or short lived? Is this recession any different from previous ones? How much can we rely on predictions and marketing diligence? What could be the possible reasons for the current downturn? Is it China? Is it the world economy? Is it oversupply or poor demand? Will shipping continue to attract investors?
So to analyze this it is important that we see the historical perspective of Shipping, how the shipping has evolved over centuries as you know Dry Cargo Shipping is almost 300 years old and it has got a very rich past and it has withered many storms, and how different is this storm that we are currently going through from the others is what we’re going to analyze.
The Sailing Ship Era was from 1741 to 1869 which is almost 130 years, we then had The Liner & Tramp Era from 1860 to 1945 which is almost 80 years where you had the small ships, liner ships and the container ships followed by The Bulk Shipping Era, the one which is currently going on since 1945 which is almost 70 years.
We’ll focus more on the Bulk Shipping Era which was from the 1945 onwards, Shipping has been a cyclical industry throughout, what we’ll do is focus on the various cycle it has gone through and see how this cycle is so different from the previous ones.
As you can see in the graph below, there is a distinct difference between what we saw Pre 1970 and Post 1970. Pre 1970, the volatility was less, the size of ships were less, there was restricted trade, hence you see the ups and downs are not so much. Post 1970s the volatilities are quite pronounced, you can see more picks and drops, primarily because we have bigger ships which means more volatility and the volatility Post 1970 has been primarily because of economical reasons. We had the worst recession from 1982 to 1986, something similar to what we are facing now, in 1997 we had the Asian crisis, in 2001 we had the Dot Com crisis and in 2009 we had the Global crisis which we are currently facing. But if you consider Pre 1970, we are more Political, we had the Korean War, the Suez Canal Closure, the 1971 oil crisis. So, there is a distinct difference between the volatility we faced Pre 1970 and Post 1970.