It’s not the first time Andrian “Andy” Dacy has cited a need for caution in assessing shipping markets.
Only last June, the chief executive of JP Morgan Asset Management’s Global Transportation Group told TradeWinds: “We’re exercising more caution.”
But the banker-turned-shipowner seems to have taken that sentiment to a different level in his latest discussion on the markets.
To concern over the Ukraine war last summer, Dacy has added worries about a global banking scare, rising interest rates, the prospects of recession and continued uncertainty over future vessel propulsion systems amid carbon-reduction efforts.
“This is a time of caution in the industry,” he said. “We’re not seeing the crystal ball as clearly as we have in the past.”
All of that may mean a slower pace of acquisitions for a group that has taken in more than 200 vessels under Dacy’s tenure since 2009.
“Being measured and making smaller investments would be the watchwords rather than taking big positions,” he said.
“We’re watching how things unfold. We’ve seen big moves by the Fed [the US Federal Reserve]. Central banks globally have had to react, and consequently markets are navigating uncharted waters.
“When the dust settles, are we in a recession? And if we are, is it deep or shallow? And will shipping evade this gravitational pull or will it slip over the event horizon?”
When translated into Dacy’s views on market segments, there are some similarities with his takes of nine months ago — and some differences.
LNG
This was the sector on which Dacy was most bullish in June, and that hasn’t changed.
“We remain quite favourably inclined toward LNG. I do think LNG will remain, not only as a result of the geopolitical tensions we’re facing but also driven by the near-term challenges of the global power transition, an important source of energy.”
At our previous interview, VesselsValue data showed JP Morgan’s Global Meridian Holdings affiliate in Bermuda had 14 newbuildings of 174,000 cbm each on order at South Korea’s Hyundai Heavy Industries and Samsung Heavy Industries.
Dacy said JP Morgan now has four LNG carriers on the water and 20 under construction.
Europe is unlikely to return to the same dependence on Russian supply regardless of the outcome in Ukraine, he said, adding: “I think LNG, while not a perfect fuel for power generation, has a decent runway for the next 20 to 30 years. We’re demonstrating that with our actions.”
Product tankers
Last time round, Dacy was still uncertain about the prospects at a time of soaring gasoline prices. But with product tankers the top-performing sector for the whole of 2022, he acknowledges bright prospects.
It just might not make the case for acquiring secondhand vessels currently, or newbuildings.
“The market clearly has benefited from the war in Ukraine. I don’t know if that’s a long-term change, but it’s at least a medium-term change,” he said.
“When the war gets resolved, I think there will still be asymmetry as to how product cargoes trade. That dislocation won’t go away any time soon.”
That means an elevated climate for rates and newbuilding prices.
“While existing product tanker owners are obviously benefiting from this, the decision to invest in the space becomes a little more complicated. We’re trying to get a sense of the timing on that.”
Dry bulk
Dacy voiced some hesitance last June, especially about larger bulkers such as capesizes, as China was still grappling with Covid-19 woes. The wariness was justified as capes struggled in the year’s second half into the first quarter of 2023.
But the outlook on the sector has improved, and Dacy is among those with a more positive view.
“The dry cargo market looks the most interesting from an investment perspective,” he told TradeWinds.
“I am much more hopeful on capes. I still think the smaller sizes offer a little bit more of a predictable pathway if China continues to reopen. But the outlook for capes is much better based on the outlook for China and also India, which seems like it’s moving into a turning point.”
That optimism may have quickly produced a deal.
The interview was conducted prior to TradeWinds reporting that JP Morgan is being linked to the $60m purchase of three handysize bulkers from Swire Bulk.
Dacy had not addressed the reports at TradeWinds’ deadline.
Container ships
Dacy’s outlook remains wary as the sector continues to struggle following record performance in 2021 into early 2022, although it is not entirely negative.
“There’s a school of thought that we’re seeing a recession being engineered [by central banks] and that will impact consumer spending and retail spending, and cause another downward notch in the container market,” he said.
“The question is, when the market stabilises, will it do so at higher than pre-pandemic levels? It may be helped by a shift to investment in hard assets during a period of inflation.”
Dacy questioned whether the larger boxship classes will be the place for investment, as they have been for the past 20 years, or whether a shortage of supply in smaller tonnage classes might make that the better option.
