Trade War - BIMCO Bulletin

Trade War

ECONOMY | TRADE WAR November 2018 trade war: now is the wrong time for business as usual By Mette Kronholm Frnde, Communications Manager and Editor at BIMCO t he global trade war has caused much talk over the past 12 months but, so far, it has had only a limited effect on shipping. But with all tariffs now implemented, the industry is finally getting a taste of what it really means. Now is not the time to follow a business as usual strategy when planning for the next peak season. As the trade war rages on, it is becoming apparent that the usual trade patterns shipowners use to plan where to send their ships next are changing. Making the wrong predictions could prove to be costly. Making the wrong predictions could prove to be costly We are seeing some quite extraordinary numbers. Who saw it coming that Iran would emerge as the number one importer of US soya beans in August, or have predicted that China would import not less but no crude oil at all from the US Gulf in the same month, asks BIMCOs Chief Shipping Analyst, Peter Sand. The peculiar thing here is that crude oil is not actually part of the trade war at least officially but it is one of several tools in the Chinese tool box that will be applied in the process. why should I care? With trade patterns changing, the planning of where to position ships next becomes increasingly difficult for shipowners and operators. For those operating in the spot market, making wrong predictions could result in a lack of cargo upon arrival. The biggest worry for shipowners and operators right now is that they simply have no visibility, or very little visibility, as to what is normally the peak season for dry bulk that is critical, says Sand. In a normal year, ships head for where the seasons deliver plenty of cargo at that point in time. Now, for the fourth quarter, ships would sail to the US Gulf coast or its northwestern coast for shipments of predominantly soya beans, corn, coarse grain and wheat. A few months back, the destination would have been South America, because it was the peak of the grain export season. what if you no longer know for certain to what extent there will be takers and buyers in the market? But what if you no longer know for certain to what extent there will be takers and buyers in the market? Would you position your ships well in advance for a cargo that may never show up? Sand asks. Moreover, the ships are also likely to experience different discharge ports than a normal season would dictate, making the following voyage different from a normal season, too. Not business as usual According to Sand, the prudent owner is likely to put fewer ships into position than he or she would do in a normal season, as cargo volumes may not be around to the same extent as they would be without a trade war. Shipowners need to see this as a risk that you have to handle and manage to the best extent possible. You cannot manage the politics of a trade war, but if you have six ships and you would normally position them all in the US Gulf for the export season, now might be the time to look closer at risk management and only send three, Sand says. Also, it is vital that you stay alert to the intelligence and developments, even more than you would normally do. And do not follow your business-as-usual model right now, Sand says, adding that the trade war is unlikely to go away any time soon. Declining volumes until february 2019? Sand and his team closely monitor trade flows, recently crude oil and soya beans in particular, as they are the dominant commodities that are impacted by the trade war and, in turn, are affecting shipping. Shipowners need to see this as a risk that you have to handle and manage to the best extent possible We already know that the Chinese have shied away from American beans all year. As the peak season of US soya bean exports is just getting on its way, the next three months will be decisive, says Sand. During the first seven weeks of the marketing year (starting 1 September), Chinese imports were down by 97% to just 202,000 tonnes. Last year, China took 6.4 million tonnes in the same period, accounting for 67% of total US soya bean exports at the time. BIMCO expects US soya bean exports to be significantly lower this season. While US retailers seem to have been stocking up ahead of the implementation of tariffs, which was positive for transpacific trade and imports into the US West Coast and East Coast, it could have a knockon effect further down the road. If US retailers have been stockpiling ahead of the implementation of the tariffs, we will certainly see an effect where the next off-season will be weaker than a normal off-season, says Sand. We could be seeing volumes coming down all the way until the next turning point Chinese New Year at the start of February 2019. Connect with BIMCO Facebook Twitter Linkedin YouTube