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00:00How is your business at the moment in relationship to the bottlenecks are you seeing them in the rear view mirror. Morning. First of all the reason why it went up as fast as it did last year I think it will explain why it's falling the way it has. And for that do you have to understand that the demand supply balance or the drive up market and the start of the European market one was in perfect balance. So any change would create extreme volatility as done by demand grew last year at four point eight percent and net fleet grew by just three point five percent. Rate skyrocketed and accelerated a peak on the seventh of October with the BBA hitting a 30 year high at five thousand six hundred and fifty points. Since then it has fallen consistently. And the reasons for that are as follows. China first of all allowed a program and its brethren to collapse. They imposed strict anti pollution controls on coal fired power plants. Post Cop 26. They curtailed steel production and insisted on blue skies for the Winter Olympics. Fundamental demand therefore took a hit. And the minute you had a hit on the demand side the rate started to fall. Because as I said demand supply are in perfect balance. Now what happened in the rest of the world of course was little different. Central bankers there have started to eat neighboring and have indicated anywhere between three and four interest rate hikes. That again is cooling down the economy. So again hurting the demand side of the operation. And then finally at the end of the day you have to look at him with. Yes. Hang Seng. Yeah. You're checking the supply dynamic supply demand dynamic. If we look at also the effect of what we saw with coronavirus we saw of course a huge lot of pent up demand which I think you probably seen the back of. It's the latest variant having an impact. And on top of that have you seen supply chain rejigging which may have also been responsible. Maybe some of that is not done with quickly. OK so a supply chain rejigging for that you must understand that the Army Corps variant is very very infectious. And if you have a Covid policy as China and then it's definitely going to make a lot of disruption a big piece of what they're already seeing condition in the modern ports in China ramping up. That will increase the pressure on the supply side of ships and therefore will start to push rates up. And this will happen the minute China turns around and opens the taps which we expect them to do by the end of the Winter Olympics I'll say by the end of February. So we will see a shop down the road as sharp as the fall has been. You'll find that the shop they've done wrong is equally shop. Call it what assumptions are you making about freight rates. There are currently about seven times higher than the average. Again you know very difficult to look at anything and give you hard numbers because the rates have fallen too. For example if you look at the Cape Sciences on the 7th of October the gates reached a high of eighty six thousand plus dollars a day. Today that keeps out seven thousand dollars. So it will go back up and then it will hit eighty six thousand dollars which just say maybe more than eleven times better. Does that date right now or more. Well we don't know. But we've got to see how it plays out. And a lot will depend on China. With the freight rates sky rocketing I'm wondering how the smaller companies are coping I mean not only are they fighting for space they're also facing a cash flow issue. Not really. Not really. See this is where the problem lies. You know when you look at the beady eye and you see it fall like this. You think that the rates are falling all over the world and everybody's been in a real mess. It's not true. For example if you look at the index levels from both the supermarket sector and the Henley side sector baby involved both of them are running today at about twenty thousand dollars a day. As against the gapes at seven thousand dollars of. So we are not in any cash flow problems. Is the gifts are certainly in desperate problems right now. Yeah. Without my. One of the typical bugbears of the shipping industry is being in good good times a over order ships in bad times they tend to cut too many of them. Is there any evidence of that going on this time around. Well I'm glad you asked this question. This time around there's a huge disconnect between the rates in the market and the amount of ships being ordered. And that is mainly because of a few reasons. The first of them being that for the last 12 years ship owners have had a very hard time and therefore there's not that much of cash lying around. And I think memories are not that easily erased off. The last will be a depression that we've gone through. So this is one factor which is holding back. People are ordering ships. Second factor is that the other sectors like the container liners the bankers the gas carriers they started off the markets much earlier than us by going up very sharply and therefore they're taking away all the available slots. So that's another factor that's going to get us out from ordering ships. The third factor is that the number of shipyards at the peak you could say that there were 261 shipyards manufacturing ships and say for example in the year 2011 being delivered almost 1600 dry bulk ships alone. Now today there are only 81 shipyards. And if you look at the year 2020 they only managed to deliver a 400 grab options. So you can see that there is not much capacity there available to. And the most important reason the all again is the new regulations coming into force on the 1st of January 2023 covering two new routes promulgated by the IMF and which will be adopted by most countries in the world which will first default forced on us to slow down ships. I mean you have no choice because the market is good or bad. You have to slow down. The press reports that anywhere between 70 and 90 percent of all guidebook Bulgaria is recovering from this slowing down of ships. Now if you slow down ships even by one lot you effectively reduce supply by almost five and a half percent. So if you were to come down from the speeds that we had in the second half of last year when we all went full speed then you'd have to reduce speeds today under the new rice treatments. And three knots means about 15 16 percent of supply being taken off the table. That ship pushed rates up once again very sharply. Supply chain disruptions is one challenge for the shipping industry the other of course decarbonisation. Are we talking about surging costs for decarbonisation. The estimate out there is about one and a half trillion in the next 20 30 years. How will this play out for the shipping industry. With great difficulty because to have that type of cash lying around in an industry that has been giving you an average return on equity of about 1 percent per annum provided you survive the down times and you did not get bankrupt in that period then you would give that type of return on equity on a longer term basis. And so this industry is not has not been very profitable. So for them to be spending that type of cash where will they get it from. And therefore I feel that the ordering a new ships will be highly constrained so long as these new rules and regulations are there. And so long as we're heading towards a zero carbon environment zero carbon footprint fault for for Shery Ahn.

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Precious Shipping On Supply Chain Disruptions

Precious Shipping MD Khalid Hashim discusses the impact of supply chain disruptions on the maritime industry. He was speaking with Haslinda Amin and Rishaad Salamat on "Bloomberg Markets: Asia." (Source: Bloomberg)

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