People aren’t buying ships. Okay, not people but companies — which are run by people. That’s a problem. If I lived in a sick world where I had to choose one metric to gauge economic outlook it would quite possibly be global ship orders.
Shipping businesses, be they bulk or crude carriers are a gauge of confidence in the long term global market. You wouldn’t want to buy a new car if you had uncertainty at work and shipping businesses don’t buy new ships if there’s uncertainty with their clients. Thing is, while their clients might literally be businesses in the aggregate they’re actually countries.
This is a problem, probably. Global economic output hasn’t been great the last few years and the shipping industry wants to trim down on capacity. Furthermore, the types of ships being ordered should cause concern. While bulk and crude carriers consisted of around two thirds of all ships being built a decade ago they’ve now dropped to 42%.
More distressing a large segment of new ships being built are liquified natural gas or LNG ships. This means while overall ship orders are down, they’re currently being propped up and would be dramatically lower if our energy needs weren’t shifting so dramatically from oil to LNG.
Businesses should keep an eye out. This news of a decline in ship orders paired with a stabilization in the tight US warehouse market signals the market may be cresting. US warehouse capacity has become a difficult metric to gauge as it’s been taxed by an increasingly e-commerce focused economy. Because of the shift from brick and mortar to e-commerce growth a tightening of capacity can (almost) paradoxically occur during a market downturn.
Small businesses should take note and judge everything with a pessimistic lens through the end of 2019. In this case it may be better to be safe than sorry.