Russia’s unprovoked invasion of the Ukraine on 24th February 2022 has continued to drag on resulting in the death of tens of thousands and Europe’s largest refugee crisis since the Second World War. Any speculation that the war would end with a swift Russian victory have been dashed by the courage and resolve of the Ukrainian people.
With the onset of the war, energy markets surged resulting in a seismic shift in the shipping markets around the globe. As Europe worked to eliminate their dependency on Russian energy they had to look abroad for alternative sourcing in order to keep key industries running and provide gas and power to Europe’s citizens.
High natural gas prices meant that much of the local chemical production in Europe was no longer competitive opening up arbitrage opportunities from as far away as China (where there was an oversupply of Chemicals due to weak industrial demand). The net result was longer ton-mile, higher vessel utilization rates and surge in freight rates.
Nowhere was this more evident than in the Trans-Atlantic market where freight rates surged more than 50% overnight eventually doubling over the period of a few months.
Freight rates showed tremendous resilience throughout 2022 and into 2023. With energy prices now in full retreat, natural gas prices have begun to settle at their previous 2020 pandemic lows once again making the local manufacturing in Europe economically viable mitigating the need for certain imports. It remains to be seen how this narrative will play out along key trade routes however a more self-sufficient Europe will mean more regionalized trade flows and potentially another re-alignment of
the ton-mile.
It is unclear when the conflict in Ukraine will be resolved and the impact will certainly be felt for generations to come. What is certain is that the uncertainties of war will continue to create market volatility. This, coupled with the small order book for stainless steel chemical tankers should serve to keep freight rates up from the “pre-invasion” lows however heading into the summer months it is apparent that a market correction is well underway.
By Patrick J. Quincannon
President, CEO
Quincannon Associates