Shipping Rates Plunge: Commodities, Stocks Could Follow

Chris VermeulenChris Vermeulen

An almost immediate reaction to the Coronavirus outbreak in China and throughout most of the world has sent shock waves through the global markets – particularly seen in shipping and oil. The actions within China to attempt to contain the virus spread include shutting down entire cities and setting up mass quarantine events. It is estimated that as many as 8+ million people were quarantined within cities in China throughout the Chinese New Year.

Chinese President Xi Jinping warned recently that the Coronavirus, and the efforts to stop it, may greatly reduce the Chinese economy over the next few months. The President Xi urged top officials to refrain from “more restrictive measures” to contain the virus. It is our opinion that more restrictive measures are essential to contain the spread of this virus and that further contraction in the Chinese economy, as well as other economies, are almost set in stone at this point.

Information we’ve received from some friends living in China and Hong Kong suggests that travel is very restricted, face masks are scarce, people are staying inside their homes and surviving as family units within very close contact with one another. They are scared, trapped and unable to do anything other than try to wait this out. Imagine what this is doing to the local economies, shops, offices and businesses?

Reflectively, global shipping rates have collapsed over the past 30+ days as one of the first signs of the contraction in the global markets. As of December 31, 2019, both Tanker and Dry-Bulk rates were hovering near $14,000 per day. Now, this rate is near $2,500 per day – a -82% decrease. As you consider the broader aspects of this massive decrease in shipping rates, consider the global contagion event that may setup if the Belt-Road region is adversely hit with the virus.

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