August is sometimes the season of market madness for shipping. With 2020 being the year where all concerned have thrown out their playbooks, are we looking for an extended silly-season (where the old rules don’t apply), or will we see a return to “business as usual”- however defined? In this über-data age, we have some symptoms of information overload- with data driven models striving to predict what will happen next. Shipping folks like simplicity, no economic models are deployed beyond simple counts of ships anchored (or piles of stuff on the docks). So the instant thoughts are that Capesize bulkers are seeing more congestion at receiving ports and longer voyages (maybe) as Brazil cranks up the mines. On the tanker side, we seem to be in the midst of the mother of all inventory drawdowns- with vessels coming back into the marketplace faster than anticipated (including by me) a few months back. And in the container world, China seems to be picking up (think of those aforementioned receiving ports for iron ore- geographically proximate to sourcing ports for cargo in boxes).
But my mandate is take a more nuanced view When it comes to economic modelling and predictions, I did read a very good article- actually in the form of a comic, in the Duke magazine- section called “The Quad”, where top flight medical experts have tried to model the spread of the virus. Aroused by the tagline that drew me in “Why are COVID models so wrong?”, I asked myself why forecasts of shipping markets, even with timeframes measured in mere weeks, often miss their mark. The visual nexus of a comic style article, with title “The Data Effect”, enabled the authors to compare the business of predicting the viral spread to the business of forecasting hurricanes. Included were interviews with a Biostatistician and a Population expert, members of the Duke faculty seeking to inform on Public Policy. Just as policy wonks need “models” to guide them, shipping folks can also be guided by models.
This comparison to hurricane maps is seasonally appropriate- with an unprecedented two storms bearing down on the U.S. Gulf during the same week. By the way, the oil refinery and supply chain disruptions give the tanker market a short term fillip- emphasis on short term. The comic writer (actually a prose writer who borrowed an illustrator from a different department), quoting one of the academics, pointed out that hurricanes rarely go right down the middle of those projected paths. Rather they can veer off to the sides, or maybe switch their direction depending on external forces. There you have it, to continue my quoting, referring to the hurricane cones: “They don’t tell you exactly when or where the storm will come ashore…but they give you a sense of what’s coming so you can plan.”
Outputs from some of the prognosticators out there will straddle their base cases with “high” and “low”bands, much like the contours of the hurricane cone on those maps, or like the health planners- the target of the Duke article. When it comes to the specifics of the Hurricanes- especially Laura, analysts have compared shutdowns to those of the Katrina timeframe of 2005 with Gulf Coast refineries, petrochem producers and all manner of terminals shut down. Disruption is always good for tankers, but model boffins will remind market participants and investors that things can get “back to normal” pretty quickly- back into the path of the cone, so to speak.
