Shipping should see its best year for half a decade in 2020, but it will most likely never enjoy another supercycle like the one in the mid-2000s, analysts say.

"I think a lot of people own [shipping stocks] on the expectation that 2020 is going to be, depending on the segment, the best year we have seen in at least five," Evercore analyst Jonathan Chappell told TradeWinds. "I think we’ll definitely have an upturn."

For 2020, he said Evercore is "very positive" on tankers, "positive" on LNG and "moderately optimistic" on dry bulk, whereas most are "very optimistic" on bulkers.

Chappell, who has covered shipping for almost two decades, said: "That would be a very strong year, whether or not it’s anomalous because you have a once-in-a-generation regulatory issue, which is IMO 2020.

"It's all about supply and demand. Nothing more, nothing less. We think demand growth will exceed capacity expansion in tankers in 2020, but not in dry bulk."

He predicted that tankers are especially primed for better days, following a very light orderbook and weak market since 2017 that has driven low fleet utilisation.

"So, the capacity side is set up well, IMO 2020 should be disruptive and you can debate for how long or what the magnitude is going to be," he said.

Recession risk

"The only risk to this was a demand issue but now we have recession yellow flags on the horizon. Oil demand estimates are coming down every month, it seems."

Evercore's expected 2019-to-2020 average daily tanker rate hikes include: VLCCs by 46% to $35,000, suezmaxes by 38% to $29,000, aframaxes by 35% to $25,000 and LR2s by 27% to $21,500.

With it being an election year [in the US], I am optimistic that some kind of trade deal will be made, which will certainly improve sentiment in both the physical market as well as shipping equities

Randy Giveans

Average daily dry bulk rates also are expected to rise, but not as much: capesizes by 17% to $14,000, panamaxes by 14% to $12,500, supramaxes by 20% to $12,000 and handymaxes by 30% to $8,500.

Recession risk aside, next year's rates may be shipping's best since 2008 thanks to demand firm enough to exceed supply, Jefferies analyst Randy Giveans said.

"Although tanker rates in 2015 and dry bulk rates in 2010 will be hard to beat, every other sector in every other year in the past decade should be exceeded in 2020," he told TradeWinds.

"Add in the disruption from IMO 2020 and rates could certainly exceed expectations next year."

However, he said the US-China trade war presents a wild card in how markets will shape up next year, but both nations showed signs on Monday of striking a trade deal after a 19-month tussle.

"Fortunately, with it being an election year [in the US], I am optimistic that some kind of trade deal will be made, which will certainly improve sentiment in both the physical market as well as shipping equities," Giveans said.

The next supercycle

Still, Chappell said stakeholders should not hold their breath for another supercycle like the one between 2003 and 2008, during which the Baltic Exchange Dry Index (BDI) rose to 11,689 on 5 June 2008.

It came crashing down to 666 six months later as the Great Recession of 2007 to 2009 took hold.

Actual daily rates were also at all-time highs back then, with capesizes being fixed at around $65,000 per day.

"You were coming off of a two-decade period of under-investment in ships because the market was so weak in the 1980s," Chappell said.

He added that several other factors, such as the late-1990s Asian financial crisis and the early-2000s dot-com bubble crash, teed up shipping for a very good run.

China's insatiable appetite for raw materials after joining the World Trade Organisation in December 2001 also helped.

"It was kind of masking under the surface an improving market and under-investing in capacity," Chappell said.

"So, those were the two elements that were in place in the supercycle and that’s why I don’t think you’ll have it again."

The BDI made it to 2,213 on Tuesday, rebounding from a low of 595 on 11 February this year in the wake of the Vale dam disaster in Brazil on 25 January.

Tanker rates also had an incredible heyday in 2008, with VLCC rates climbing as high as $300,000 per day as tonnage fell well short of oil production. Average year-to-date rates for 2019 are at $30,853, according to Evercore.

Randy Giveans, analyst at Jefferies Photo: Contributed

Chappell said rates will fail to reach those heights again because shipping will never see such under-investment, given today’s yard capacity and access to capital.

China and India are creating a lot of demand as emerging nations but he added that India's need for raw materials will probably not surpass China's appetite.

"People talk about India as the next China," he said. "I don’t think that’s realistic. I think India is a growth market without a doubt, but I don’t think it’s the next China."

2021 and beyond

Chappell said the years after 2020 could be anyone's guess because the newbuilding order outlook until the end of 2021 is a mystery.

"It depends on which segment," he said.

LNG looks "really poor" beyond 2020 yet dry bulk may see a rally — but he added that everything can change if the "R" word rears its ugly head.

Three years ago, there were 15 analysts that just covered shipping, but now you can count them on one hand. It’s already plummeted to pretty low levels and I’m hopeful that a very strong year in 2020 will bring a lot of people back

Jonathan Chappell

"All else equal, on the global economy, if we go into a recession, all bets are off," Chappell said.

Whatever happens, Evercore is withholding forecasts for beyond 2020 until this year draws to a close and IMO 2020 casts its spell over shipping.

After all, investor interest in shipping has certainly fallen since the glory days of the supercycle, as evidenced by Evercore's smaller number of analysts, Chappell said.

"Three years ago, there were 15 analysts that just covered shipping, but now you can count them on one hand," he said.

"It’s already plummeted to pretty low levels and I’m hopeful that a very strong year in 2020 will bring a lot of people back."

Indeed, shipping may never have the horde of investors it once did, but Chappell said it will always have backers willing to take a chance on the centuries-old livelihood.

"Maybe there’s somebody with the opinion that you can have another five-year run like that, but you’re in ships or stocks or whatever because you think things are going to get better, not worse," he said.

"Whether it’s two years or five years or whether it’s explosive or just grinding higher, you’re only in it because you think things are going to get better."