World Trade Frictions Could Result in New Trade Routes for Shipping

Just as we thought the world was calming back down to reason, worries and frictions regarding global trade resurfaced this past week after a series of impulsive and sudden announcements coming out of Washington DC. The volatile and unpredictable temperament prevailing in US politics right now has put global trade talks on a highly unstable and unpredictable track.

According to Mr. George Lazaridis. Allied’s Head of Research & Valuations “the announcements on the pushing through of tariffs on US$ 50bn of Chinese imports along with the imposition of high tariffs on steel, aluminum and car imports on its NAFTA trading partners as well as other major trading partners such as Europe and Japan, has put all optimists on a tail spin. The first wave of all this anguish was to be felt on the Global equities stage, as prices came under considerable pressure reflecting the level of pessimism that started to take center stage. The gloomy mood thereafter spilled over to the commodity markets, with most traders looking to ease back on stocks amidst the growing uncertainty”.

However, “despite all this negative talk and mood, there does seem to be a silver lining emerging on the horizon. An alliance is slowly taking shape amongst the remaining G7 economies, as they look for better options elsewhere given the lack of cooperation seen from the US. China has already started to bring on its charm to Europe looking to strengthen trading relations there. At the same time, Russia is also sweetening their ties with the old continent, with the controversial gas pipeline project connecting supplies from Siberia directly into Germany progressing at a faster pace. New alliances may open up new trade routes and in turn new opportunities and strategies for shipping”, Lazaridis said.

According to Allied’s analyst though, “with the prospects of the US taking a more isolated position, the overall long-term prospects for market fundamentals won’t be riding on their most optimum outcome. This controversial approach to trade negotiations seems to be nothing more than side show attractions as recent evidence has shown, though the short-term disruptions they bring about are very real and severe for shipping markets. An example of such negative disruptions could be seen in the conditions noted in the dry bulk freight market in the North Atlantic over the past month, with the slack in grain shipments having left the market without any real support”.

“What is more is all these disruptions to trade come at a point when global commerce is only just managing to get back on its feet. Overall, the negative effect in regards to the long-term prospects may well seem minimal for the moment, though if this pattern continues on for too long it will likely dampen prospects moving forward quite considerably. As referred to last week, things still look to be promising for the dry bulk market over the next couple of months, given that we have already seen China’s return to the US soyabean market this past week albeit if its only temporary. This is quite significant given that the last reported soyabean sales to China from the US were noted back in early April.

 

Inevitably, demand will find a way to source its needs in the short-run, even if it has to take longer routes to do so. The question is as to how many disruptions the market can tolerate before the overall mood starts to become sour and as a consequence we start to feel a more sluggish growth rate in demand take shape. Let’s hope that all this trade tension proves to be nothing more than a small temporary side note, as such unorthodox negotiation tactics may well end up hurting all of us, including the US economy of which its interests they are supposed to be serving”, Lazaridis concluded. 

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