Our thinking

Shipping

As with all industrial sectors, shipping is susceptible to economic downturns. It is, by its very nature, a cyclical industry as supply is quite inelastic relative to demand due to the long lead-time in building new ships.

The current slowdown in the demand for seaborne dry commodities has resulted in freight rates experiencing historic lows. The major supply-side factors behind this trend include the current world fleet and its productivity, shipbuilding, ship scrapping, and freight rates. On the demand-side, they include the current state of the world economy, international maritime commodities trade, average achieved profits, political events, and transportation costs.

Despite the current downturn in global shipping, the world’s population continues to expand. Consequently, emerging economies will continue to increase their requirements for the goods and raw materials that shipping transports and the absolute volume of world trade carried by sea continues to steadily increase.

Shipping cycles generally do not last longer than ten years and the current ongoing cycle is in its eighth year. This presents a window of opportunity for an attractive and lucrative point of entry into this sector to benefit from a market turnaround, which will gradually occur as the supply glut is corrected through increased scrapping, reduction of new orders, and as the world economies begin to recover.

We aim to take advantage of these all-time lows experienced by the current market through our Shipping Opportunity Fund, which places a strong focus on the dry bulk shipping sub-sector.

We place special emphasis on the dry bulk sector, which has entered a transitional phase. In recent years, there has been a significant reduction in charter rates, and asset values of bulkers are currently the most depressed, as they are currently trading at a nearly 60% discount to their last ten year average. Bulkers have been the hardest hit by this industry downturn, but given the essential nature of the cargoes that they transport, they will also recover the most rapidly when markets turn.