Shipping fact of the day

by on January 25, 2016 at 5:50 am in Uncategorized | Permalink

China’s slowing growth has crushed shipping rates to such an extent that hiring a 1,100-foot merchant vessel would set you back less than the price of renting a Ferrari for a day.

There is more here, via Jesse Colombo and Marc Andreessen.  And here is James Hamilton on how and whether low oil prices can cause a recession.  I’d like to see someone put this together with various (dubious) claims about “the macroeconomics of inequality.”

1 Master of None January 25, 2016 at 6:01 am

Actually Tyer, I think this referring to bulk carriers for iron ore / coal, not crude tankers. Perhaps counter-intuitively, shipping rates for oil tankers are still very high, with spot returns for ship owners well into the double digits. As a percentage of the crude oil price, oil tanker rates have not been this high in at least 30 years.

Why this divergence? There is more supply of crude oil that needs to get to market, vs. what the shipping industry planned for over the last 3-4 years. The opposite is true of iron ore and coal.

2 ABV January 25, 2016 at 8:46 am

Don’t forget that crude is in Contango so VLCCs are being hired to serve as floating storage and being instructed to travel much slower. The higher rents can be made up for by the storage/Contango trade.

3 Master of None January 25, 2016 at 10:30 am

Contango only partially makes up for the high rates, but it’s true that this is a factor. And also true that the opposite is true for iron ore and coal: those are in backwardation.

4 Matt2 January 25, 2016 at 7:24 am

Absolutely correct Master. This kind of mistake reminds me of the opening scene of “The Shipping Man” by my near namesake.

Drybulk has gotten crushed and container ship rates are low. Tanker owners are making hay for now as production couldn’t/didn’t slow as fast as demand, shoreside tanks filled up, and it had to be stored somewhere. Not only are day rates through the roof, wear and tear is minimal because in a lot of cases the ships are just sitting.

5 rayward January 25, 2016 at 7:25 am

Of course, falling oil prices can cause a recession in places where oil is a large part of the economy – places like North Dakota where there’s nothing else, or in Texas where oil affects everything (even the price of ranch land, which has been falling along with the price of oil because the oil millionaires are unloading their ranches). Hamilton makes that point, and he also shows the strong correlation between falling oil prices and falling stock prices, especially in the Chinese stock market, but asks whether falling stock prices is causing falling oil prices rather than the other way around. As Cowen often reminds readers, correlation is not causation, a point he emphasizes again and again when someone (like me) mentions that excessive inequality correlates strongly with financial instability; hence, Cowen’s comment about “dubious” claims about “the macroeconomics of inequality”. I was thinking about the macroeconomics of inequality just this morning while reading an article in the NYT about the shortage of affordable housing in places like Vail for the people who work in the restaurants and the hotels and in the shops and on the lifts, and the ineluctable law of economics first observed by the late (and great) economist, Lawrence Peter Berra: people don’t go there anymore, it’s too crowded.

6 chuck martel January 25, 2016 at 8:18 am

“Of course, falling oil prices can cause a recession in places where oil is a large part of the economy – places like North Dakota where there’s nothing else.”

Yeah, there just wasn’t a thing happening in North Dakota until the fracking boom came along. That might come as something of a surprise to the North Dakota farming and ranching community that has supplied the world with wheat, spuds, sugar beets, sunflowers, flax, oats and beef for many years.

7 RoyLC January 26, 2016 at 7:14 pm

Sure they were doing good and useful work, can you think of anything more North Dakotan?

Well maybe this completely typical news story from 2009

North Dakota is about the most underrated place on earth (Saskatchewan at least gets to be Canada’s Kansas), but every year it takes less people to grow more than 1% of the earth’s wheat, and make North Dakota #1 in the US in wheat and edible beans.

Despite all this I doubt I will ever read Tyler’s travel bleg for Bismark or Minot.

8 dearieme January 25, 2016 at 7:48 am

It would cost more to fuel the vessel than the Ferrari. Unless you planned to buy the Ferrari’s petrol in Britain, of course.

9 Tiago January 25, 2016 at 7:55 am

I wonder what Scott Sumner would say about Hamilton’s piece.

10 chuck martel January 25, 2016 at 8:31 am

“But regardless of whether it’s oil prices that are moving stock prices or the other way around, folks in Texas and North Dakota have plenty of reason to be concerned.”

North Dakota, at least, had a pretty stable economy prior to the fracking boom, which came about because of high oil prices and is dissipating because those prices have crashed. The people that participated in the boom generally arrived from somewhere else. Now that it’s over most of them will leave for some other boom and the state will return to its former bucolic self with a bunch of cheap motels and apartment buildings going through foreclosure. Big deal. It’s happened countless times all over the world.

11 JB January 25, 2016 at 3:13 pm

Good summary.

Now, if the motels+apartment buildings had been securitized and sold to everyone’s pensions, and leveraged bets for and against them had been sold in excess of the underlying value, that would bring down the economy.

Not that that’s ever been seen before, where finance crap related to a significant but not dominating sector overwhelms the real economy.

12 chuck martel January 25, 2016 at 8:39 pm

Hope you’ve gotten rid of those CMOs on property in Watford City and Hettinger.

13 collin January 25, 2016 at 9:42 am

I’d like to see someone put this together with various (dubious) claims about “the macroeconomics of inequality.” OK…

1) The two biggest trends for young people are putting off marriage until
27 -30 and focusing more on school & degrees versus working between the age 18 – 24. Why aren’t more young people going into blue collar positions? Probably because the long term pay is low, no benefits and significantly less job security.
2) With young people not working earlier family formation is put off and all the developed world has one of two realities. Either the nation has a low birth rate (most Europe & East Asia) or a high incidence of single motherhood. (US, France, Ireland)
3) And the low birth demographics long term effects both AS & AD curves.
4) Yes, immigration can plug a demographic hole but it does create the Trump or Marine Le Pen type political battles. (I believe even Singapore is now struggling with immigrants and stagnant native wages.)

14 Saginaw January 25, 2016 at 9:53 am

This is how Boom & Bust cycles work. Yawn

Big government credit expansion and easy money cause gross mal investment in stuff unsupportable by genuine market demand. When lack of demand is eventually manifest the prices drop dramatically for stuff that was over-produced … like shipping services for Chinese goods… and oil. Yawn

15 Matt2 January 25, 2016 at 10:37 am

Not exactly. It’s been this way forever in ship owning. Being in the right place at the right time once in a career can be enough. If it weren’t for the irrational and the dreamers this business wouldn’t exist. Look at the number of owners that prefer short term TCs and voyage charters to long term TCs or contracts of affreightment. Next boom is coming, just have to stay afloat long enough to be there.

16 Asher January 25, 2016 at 10:49 am

Verne’s “Around the World in 80 Days” seems to lend support to this asseveration.

17 spencer January 25, 2016 at 12:29 pm

From 1980 to 2000 energy as a share of nominal personal consumption expenditures fell from 9.5% to under 4%.

So far oil as a share of spending has fallen from 6% in 2011 to 4% now.

So the positive impact of low oil prices should be much smaller this cycle than in earlier cycles.

18 mulp January 25, 2016 at 1:08 pm

What was the positive benefits of cheaper energy from 1980 to 2000?

19 MC Molotov January 26, 2016 at 2:32 am

People had more money to spend on MC Hammer albums.

20 spencer January 25, 2016 at 12:32 pm

Interestingly, in North Dakota the labor force is actually contracting.

Apparently the unemployed oil workers are going back home.

21 mulp January 25, 2016 at 1:06 pm

“A drop in oil prices means less money in the hands of oil producers but more money in the hands of oil consumers.”

What is the difference between “producers” and “consumers”?

Where does the money producers get from selling production go?

Where do consumers get the money they pay to producers?

In the 60s, economists had two hands, but that seems to have been both confusing and too dismal economically because what economists gave you with one hand, they took with the other hand.

Reaganomics is one hand waving economics which is just one hand of government policy promising to give everyone everything they want.

Tax cuts will put more money in your pocket and no other hand is taking away any government services you depend on.

Deregulation will give crooks the freedom to promise you a million dollars after you give then access to every penny in your bank account.

Cheap energy will create jobs because the unemployed workers will be able to spend the money they paid to oil workers paying other workers for stuff, but only after the other workers cut their prices now that they are paying less to oil workers.

Payday lenders give you choices when you want things and have no money – you can chose somethings you want for nothing.

Eliminating labor laws and unions will make you rich by letting you chose from many more jobs than your single high paying union job with golden handcuffs of rich benefits and pension.

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