2020 will be a year not forgotten easily. More than half a million deaths from a disease unknown 12 months ago has asked tough questions of us all, and left business in chaos.

Microsoft founder Bill Gates deemed it: “The greatest economic hit this century.” And let’s not forget we are only halfway through this extraordinary year.

Shipping markets have faced their own turbulence, with port calls down 10% and seaborne trade set to fall by up to 5.6%, which will be the worst demand shock in nearly four decades. And ships' crews have been caught in limbo, unable to leave their vessels for months due to bureaucratic failures.

Yet, perversely, the tanker storage boom triggered by the oil glut helped average earnings soar to their highest level since the great financial crisis.

As Clarksons Research head Steve Gordon put it: “Remarkably, our cross-sector ClarkSea Index recorded its strongest first-half period for 10 years, averaging $16,373 per day, up 39% year on year and 33% on the 10-year trend.”

Unknowable

It is a counter-intuitive phenomenon so typical of shipping, where market relationships are rarely linear and often unforeseeable.

While the overall shrinkage in seaborne trade has impacted the entire business, each major market inevitably has faced its own very distinct issues, which will continue to shape short-term performance for the rest of the year.

The tanker business saw its best six months in over a decade after storage peaked at 11% of the fleet in May, but the dry bulk market was hit hard by an 8.5% fall in coal cargoes and a 4% fall in minor bulks.

Yet a tanker market-like rebound in iron ore demand has seen capesize rates quintuple in a month to nearly $33,000 per day earlier this week, lifting the Baltic Dry Index to just shy of 2,000 points.

Again, container markets have diverged, with ship charter rates shadowing the 10% fall in trade volumes as lay-ups increased, but freight rates remained remarkably resilient as lines cancelled sailings to restrict capacity.

It is not only shipping markets that are facing turbulence as seafarers are left stranded around the world. Photo: Contributed

Both LNG and LPG markets have weakened on lower US exports, while the vehicle and cruise markets have been effectively frozen by the wiping out of demand. As for offshore, few companies have survived unscathed.

Newbuild slowdown

Perhaps the greatest support to the market has been the continued slowdown in newbuilding orders and the shrinkage of the orderbook. This has helped eliminate fear of a repeat of the supply tidal wave that swamped markets after the global financial crash.

Newbuilding orders in the first half fell 53% according to Clarksons to just 10.9m gt, leaving the orderbook at under 10% of the existing fleet compared with nearly 50% in 2009. New ship deliveries were 46.1m dwt, a 20% decline on 2019, leaving them at a 15-year low.

Inevitably, sale-and-purchase business fell sharply, down 7% year on year as owners faced challenges in completing deals as prices slid.

Investment questions

Key questions for those now facing investment decisions are how the crisis will shape long-term social attitudes, and how those will play out in politics and shape future regulations and new technology implementation.

As Clarksons' Gordon says, societal pressures towards sustainability may be amplified, demanding that "green transition" trends be integrated into post Covid-19 planning and financing.

In recent weeks, TradeWinds has reported on a growing trail of dual-fuel newbuilding orders and accompanying green finance initiatives.

Lower newbuilding prices may encourage yards to push additional environmental technology, and weak markets may offer owners the opportunity to undertake refits, Clarksons suggests.

Deeper political shifts driven by populism and the widespread revolt against globalisation remain harder to call and will be slower to change, although are of huge long-term importance.

Onshoring and the deepening rift between the West and China may impact trade flows, but not necessarily in expected ways, with South East Asia stepping in where China is excluded.

Shipping will be unable to shape that debate and will just react to offer the services demanded.

Regardless of those shifts, shipping markets will face a tough period regaining the cargo lost in the past four months.

Even optimistic V-shaped growth scenarios suggest that trade will not recover to 2019 levels until 2022, while a more prolonged slowdown will push that out by at least one year or two.

Unquestionably, 2020 will go down as a most extraordinary year; principally a year of human tragedy, but also one of business upheaval. And we are only halfway through.