We seem to live in rather strange times, when there is a market shortage of components, raw materials, containers, sand, truck drivers and God knows what. There are certainly several reasons for this apparent shortage of goods, and of course many fingers point to the tangled maritime logistics. But let’s look a little further back in time, where during the spring of 2020, we witnessed a quite dramatic market plunge in several shipping segments. The global dry cargo market, which had been suffering from oversupply for years, was naturally unable to adapt to an absurd market disruption such as the Covid pandemic, which almost paralyzed the industry, and caused unemployment for ships in several segments. The situation was exceptionally strange: the stagnation of consumption drastically reduced the demand of maritime transports and was further aggravated by the uncertainty about the future and the market panic caused by the pandemic.
And what followed next? The capsized dry cargo market has quite obviously righted itself. Freight indices like the Baltic Dry Index, that acts as a barometer of global trade and indicates the transport prices of raw materials, has risen this year by about 200%. This also correlates with Baltic Sea trade, where spot freights are at historically high levels. This sharp surge in demand for raw materials and commodities also has its drawbacks; ports are congested, and deliveries are delayed. For the moment there is simply not enough supply to meet the prevailing demand, and the capacity declines further as more ports become congested. Maritime logistics is a system that is extremely tuned and optimized, so it simply cannot withstand major external disruptions. When this system is stressed enough, its recovery cannot happen in an instant. Naturally, these systemic disruptions in maritime transports also have a negative impact on sectors that are dependent on dry cargo trade, and it is good to remember that Finland is a highly export-dependent country (the export to GDP ratio was about 40% in 2019). Eventually (and sadly) this logistical imbalance will affect the consumers’ pockets as well, by further accelerating inflation.
It is more challenging than usual to predict when the ship capacity and transport demand will eventually find a balance in the global and Baltic dry cargo markets. There are simply too many variables, and the pandemic might still cause recoils that could shake the dry bulk and other markets even further. Citing Helsingin Sanomat, 5 December 2021: “Today’s world is built in such a way, where one dock worker infected by the coronavirus in southern China in May, will have an effect on Christmas trade in Finland”. This caricatured but apt vision is not very pleasant, nevertheless, too much gloom and hysteria will probably not improve the outlook for the future. In various analyzes, the dry cargo market will balance itself over the upcoming year where e.g., vaccines can act as drivers for this stabilization. However, this predicted balance does not necessarily mean a return to the pre-covid market situation, which is backed by the relatively short shipbuilding orderbooks which again indicates that short term ship capacity will not improve significantly. In this strange market situation, smooth maritime transportation is becoming more and more important, which is also key to Finland’s much-needed economic growth.
Mathias Landor
Chief Operating Officer
