The shipping industry, which has experienced a rollercoaster of good and bad times over the past decade, is once again staring down another potential rebound.
It has been quite an up-and-down landscape for shipping and logistics. Starting in 2016, with the major development of the Hanjin bankruptcy, it was followed by the formation of shipping alliances. Then, the Covid pandemic threw things for a further loop. After Covid, there were a series of record-high profits for shipping as the world experienced a supply chain crisis and associated delays/disruptions. After the crisis subsided, profits for shipping companies fell and there were many empty, unused containers – a surplus after a few years of shortages. Now, the industry is dealing with issues related to the Red Sea crisis, with security not guaranteed for nearly any ship.
But, as the old saying goes, it’s always darkest before dawn. A series of economic, political, and cyclical changes are taking shape, making it likely that the shipping industry will see a rebound soon.
Economic Factors
On the economic front, things are looking up. First, the U.S. is experiencing very strong economic and job growth, which is fueling sustained and increased demand. Fears of a recession have moved into the rear-view mirror. With this higher demand, fuel prices have actually come down. For example, yesterday, natural gas prices hit their lowest level since 2020. Gas prices for consumers are down, and diesel prices are down from last year’s highs. This increased demand will come from both consumers and businesses, ensuring continued demand for shipping and logistics.
Political Factors
Although Red Sea attacks on shipping vessels from Houthi rebels continue, the U.S., U.K, and their allies have begun pushing back against the attacks harder than before. Additionally, the U.S. has signaled it will begin pushing Israel to negotiate with Hamas to end the months-long war in the Middle East. While a full end to the war remains unlikely, steps towards a resolution are likely to further improve economic confidence and prospects worldwide.
Cyclical Factors
With economic demand increasing, shipping costs decreasing (which has depressed shipping company profits, when compared to 2021 and 2022), it is possible that the opposite of the empty container situation may occur and demand will help further reduce the supply in order to balance out shipping. In return, it’s possible shipping rates could rise, even slightly, and provide more profitability for the industry.
What challenges continue to threaten growth in shipping?
The biggest issue that could potentially prevent higher profitability in shipping is the increased costs that shippers face due to ongoing security concerns. Shippers are having to pay, out-of-pocket, for enhanced security and longer journeys around the Cape of Africa.
Additionally, with higher economic demand, fuel costs may stabilize and begin to rise again, especially as we move closer to the Spring and Summer seasons.
U.S. Political Developments
Another area being watched closely is politics, both in the U.S. and abroad. In the U.S., it is a presidential election year. If Former President Donald Trump wins the presidency once again, there may be major policy changes that drive changes in the economy and global security – either positively or negatively. If President Joe Biden wins re-election, different changes are possible. Either way, this creates uncertainty, and investors hate uncertainty.
Global Political Developments
Globally, the potential for Israeli Prime Minister Netanyahu to be removed from office is significant, as his approval ratings have declined over the past few months. If this happens, the Israeli-Gaza conflict could end quicker, or be extended. The same is true in Ukraine, where Russian President Vladimir Putin continues to wage war.
In short, there is a lot of uncertainty, which could negatively affect a shipping rebound.