AJ Rahman, founder and CEO of Norvic Shipping, explains why depending on the fortunes of one economic powerhouse is risky.
When China sneezes, the world catches a cold is a common phrase for explaining the Asian nation’s impact on the global economy. And it’s one that sums up how China’s economic performance directly affects dry bulk ship owners and operators around the world.
Operators have spent recent months poised for a Chinese economic recovery driven by improved customer sentiment following several Covid lockdowns throughout 2022 and early 2023.
With China opening up, optimists expected the nation’s economy to rebound, helping address the real estate crisis and boosting bulk demand. It appears their optimism was well placed, with the National Bureau of Statistics revealing in April 2023 that China’s economy grew at a rate of 4.5% during Q1 2023 compared to the same period a year earlier. Further signs of recovery came from retail sales and industrial production, which increased by 10.6% and 3.9% respectively in March.
What does this mean for dry bulk operators? China’s reopening will likely see increases in steel demand and iron ore imports, sparking more need for shipping companies that carry this type of dry cargo. Higher demand for coal imports, up nearly 40% year-on-year in Q1 2023 due to the rise in electricity generation in China and rising steel production, also bodes well for the dry bulk market.
The impact of China’s economic performance on the global dry cargo industry is unquestionable, but relying on the strength of one nation can be risky – especially when unforeseen forces come into play. China is on the road to recovery, but another Covid outbreak could lead to more lockdowns that adversely affect the nation’s economic growth. That would impact demand and have a ripple effect on bulk trade as well as wider business sectors.
From Norvic Shipping’s perspective, we believe operators that are asset light, based on a business model where they charter and operate vessels rather than own them, have more flexibility to adjust to market conditions. This is particularly important in the dry bulk industry where volatility reins. Instability is driven by industry developments and unforeseen events related to geopolitics, GDP growth or contraction, trade, supply and demand and weather patterns.