The current market is characterized by strong instability and uncertainty due to ongoing geopolitical conflicts and possible rules that the United States of America could implement.
As a first aspect, we must consider the ceasefire between Hamas and Israel. Political instability and regional conflicts have long been a threat to shipping in some areas. Admittedly, this conflict has never had a real direct impact on the waters of the Red Sea, but tensions between different regional factions and allied groups involved have nevertheless increased the risk of attacks with a consequent destabilization throughout the area.
Iran, an ally of Hamas, has historically been involved in exerting pressure on the Red Sea routes through support for militant groups in the region (see the Houthi rebels in Yemen) who have occasionally attacked commercial ships. The ceasefire between Israel and Hamas could thus contribute indirectly to greater stability in the region, temporarily reducing tensions and lowering the risk of accidents on ships in transit (insurance rates for the transit of the Red Sea for commercial ships have massively decreased since December to today).
Perhaps, now, we will begin to see more shipowners willing to consider such route, reducing the tonnes miles (due to Cape of Good Hope route) and finding an healthier market.
In addition, it is interesting to consider a topic that has been discussed in recent days: the possible tariffs imposed on Chinese ships for touching US ports.
With reference to the Atlantic market, and particularly the Mediterranean Sea for example, lately operators seem reluctant to price direct forward shipments to the US, with the fear that they will subsequently have little tonnage at their disposal if severe penalties are imposed on Chinese vessels. Same story for period contracts, today the offers and proposals that Chinese shipowners receive for their ships have been reduced.
These new “policies” could therefore perhaps lead to an increase in the market in future periods, reducing the number of ships available and consequently increasing charter costs. All this clearly, could have immediate effects not only on the dry market, but also on the other segments of the shipping; if we think about the container market for example, about 17% of the container vessels calling at US ports are Chinese-made (nearly 80% of American foreign trade by weight is transported by ship and less than 2% carried on American-registered vessels).
We must also consider that Trump, in addition to targeting China, plans to implement tariffs on imports of goods from EU countries, which could amount to 20-25% generally speaking, which would have a huge weight for the Western economies.
It is certain that if implemented, the proposals could disrupt the classics international transportation schemes and increase business uncertainty around the globe.
Not to be forgotten, finally, the need for reconstruction of Ukraine, a country that has been devastated by the Russian attack will at some point have to start reconstruction projects, requiring imports of large quantities of cement and other materials from foreign countries; demand that will certainly affect the market, but it remains a taboo “when” all this will happen.
