We find ourselves once again grateful and honored to have received our clients’ continuous support during last year.
Looking back to 2018; one year ago, we have been predicting that we shall have a firm 2018 with monthly fluctuations and marginally higher freight rates and we were not so far off the mark. 2018 has partly met the expectations but the things could have turned even worse for Owners without the newly found, but still fragile balance between supply & demand. Baltic rates ended the year lower than twelve months prior whereas Black Sea rates did not rocket during the summer months and remained volatile. The absence of the traditional increase of rates during the last quarter and any real gains compared to the end of 2017, left even the most optimistic Owners with a lot of questions about what to expect from 2019.
The development of GDP growth in the EU is one of the important drivers of the short sea shipping but unfortunately GDP growth is in a clear down trend. From 2.4% in 2017 which was a peak, European Commission mentions for 2018 2.1%, for 2019 1.9% and their forecast for 2020 is 1.7%. Another negative point is the barely sustainable levels of public debt which should cause more alarm in some EU economies. The public debt of Italy is now 132% of GDP which places Italy officially in recession. If you also consider the possible impact of a BREXIT (if any), the conditions are not set for a healthy environment in 2019 that allows rising cargo volumes and more employment of vessels and, in the end, better freight rates for Owners.
The chaotic January which we just experienced with BDI (Baltic Dry Index) falling from some 1200/1300 points down to 700 levels, confirms that we are not going to experience a strong start to the year 2019. However, things may be different during the 2nd quarter, if the usual “prior Ramadan rush” (starting this year in May) in Muslim countries are combined with an early summer run-up with grain shipments then we can see freights progressively improving.
As we have seen over the past 1-2 years, inter-Mediterranean spot trading, from Turkey & Egypt at the east towards Morocco at the far west and vice-versa, is proving to be a genuine new territory for some European Owners. This is a pure example of trading lanes change with Owners shifting their interest towards countries like Egypt, Turkey & Morocco, instead of remaining within the borders of their usual trading zones in Baltic Sea and North European waters. While Egypt, the Mediterranean’s fifth largest economy, is said to be getting more cross-border investment flows due to recent economic policy reforms there are some dark clouds in the horizon for Turkey as all the economy is at standby to see the results of the local elections which will take place in March 2019.
Owing to the uncertainties linked, to BREXIT and its’ consequences after March, to trade war between the US & China and many other ongoing geo-political tensions & obstacles such as Russia, Ukraine, Syria, etc., we expect that there won’t be any sudden & unexpected improvements on freight rates during 2019. It will be business as usual in line with what we had in 2018, a weak market till April 2019 with a recovery from May-June until October 2019.
What remains certain is that we are only 11 months away from IMO 2020 Sulphur regulations, the sense of urgency started to accelerate for those ‘less organized shipowners’ to either sell off their old vessels and close the page of ship owning or to invest in modern vessels. In our opinion 2020 will be the turning point in short-sea shipping to measure the real equilibria between modern tonnage supply and the demand. Those owners, which were heavily investing in modernization of their fleet, will finally be compensated for their efforts with increased freight levels in general.
I wish you all the very best in this new year.
Eren Bektas