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CMA Shipping 2024 - Maritime Economics: How are trading routes and trade agreements likely to evolve leading up to 2030 and beyond?

On March 14th, Marsoft participated in a panel discussion at CMA Shipping moderated by Arlie Sterling, Marsoft's President. The panel included:

Arlie started by asking the panel about the forecast for the tanker market over the next 5 years, and whether it had reached its peak demand. Kevin Hazel highlighted that, despite current slow growth, the market has not yet reached peak demand: it is currently at peak in OECD countries, but not emerging markets such as China and India. The dry bulk market, on the other hand, sees its demand plateauing: China’s steel demand is flat, and although coal has not yet peaked, it will likely suffer the same fate as oil in the 2030s. Asked about whether Chinese growth is fully back to its pandemic levels, Kevin stated that there was indeed impressive growth this past year, but that was a pandemic rebound and unlikely to be sustainable into the future.

The second question, to James Frew, dealt with the gas market. He discussed the conflict in Ukraine, and how the ensuing disruptions heavily altered the dynamics of oil pipelines and shifted that path to seaborne trade. LNG is well-positioned to fill that gap, and therefore structurally poised for growth. Asian demand for LNG is growing once more, and that growth is expected to continue in the coming years. That being said, James cautioned that the orderbook is overstuffed, and that all new ships won’t be easily absorbed.

Henrik Ehlers Kragh, revealed a more cautious and less optimistic approach. He highlighted that the constant disruptions in global geopolitics – the Ukraine war, the Houthi attacks, attacks from Somali pirates – seriously impact the markets in question, making them difficult to predict. Unstable economies create security risks, and an increasingly regionalized world that shirks globalization sees nation states increasingly hesitant to interfere.

Sean Pribyl, highlighted the importance of trade agreements in giving investors the reliability they seek. He mentioned a few efforts underway that can provide such confidence through agreement and regulation, including the International Seabed Authority, which the United States is not a part of as yet.

Arlie Sterling asked all panelists for their perspectives on changes between 2030 and 2040. Kevin told us that while oil demand is predicted to plateau, the speed with which it does so depends on other variables, most notably the adoption of electrical vehicles. The choices shipowners make as they build ships – the last ones to be retired before the 2050 UN deadline – will also dictate the pace of this transition.

James stated that he believes in a much stronger ammonia market globally in 10 to 15 years, but cautioned that this optimism does not extend to LNG. Henrik does not see current disruptions easing anytime soon: in his best-case scenario, he sees other serious disruptions continuing to emerge, but believes that the increasing focus on ESG should help to provide some solutions. By contract, Sean expects concerns for national security to drive nation states to overstep regulatory boundaries, and cut trade as a result.

Arlie asked whether industry leaders were speaking to national security officers – for example, from the US Defense Department. The panelists agreed that no drastic measures have been taken because despite recent disruptions, trade is still robust, and so far there has been little incentive for such an initiative.

Concluding thoughts: Henrik told us that shipping as an industry is swift to adapt to new market conditions, but that unforeseen events and disruptions on a geopolitical scale remain a key concern. Kevin responded that the current disruptions to trade patterns – the Panama Canal drought, the Ukraine war and the Houthi attacks – have lengthened routes and therefore helped shipping markets, and that the challenge is to accurately predict how long these disruptions last and whether similar disruptions are on their way.

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