Veteran Stifel analyst Ben Nolan says his annual shipping prognostications should be judged on baseball terms, where a batter who reaches base in three of 10 tries has done quite well.
When it comes to Nolan's calls for 2022, the industry has good reason to hope that he is off on at least one prediction.
In what is otherwise a fairly light-hearted look around the sector — Nolan has even predicted champions in the English Premier League and Australian National Rugby League —the analyst has made one call that would have serious implications if correct: "Chinese appetite for Taiwan becomes more than posturing."
Pandora's Box
"I hate to even open the door to this Pandora's Box, but clearly the Chinese have coveted the island of Taiwan for years and tension has been rising," Nolan writes. "Any overt military action on the part of the Chinese would be very bad for all things shipping, as it would likely lead to sanctions and a reduction in the flow of goods."
He observes that China represents nearly half of global dry bulk trade and has increasingly been a buyer of energy commodities from the US.
"We certainly hope things do not escalate in the Formosa Strait, but it would not be a complete Black Swan event at this point," he said.
The call could have implications for some of Nolan's other 2022 predictions, which lead off with the notion that tankers will be shipping's top-performing sector, up more than 50%.
He notes that the sector had the worst performance in 2021 with a total return of just 0.7%, while dry bulk and container ships surged more than 100%.
While "we expect it is going to be tough sledding for at least the first half ... calling for 50% upside is not a giant leap for tankers, but it does seem to be the segment with the most gas left in the tank."
Speaking of gas, Nolan projects that there could be as few as two New York-listed LNG companies by the end of the year after eight started in 2021. This comes as privatisation continues to grip the segment, with two listings retired during the year and two more in the works.
The analyst is optimistic for a 3% growth in demand in dry bulk — assuming no escalation in Taiwan — but sees container ship rates falling from $9,300 per 40-foot equivalent unit (feu) at present to $2,000 per feu by the end of the year on the elimination of supply-chain disruption.
"As is the nature with traffic jams, when the accident is removed, normal velocity patterns materialise relatively quickly," he writes.
LNG ascendant
On the carbon reduction front, Nolan sees LNG becoming the bunker fuel of choice on new ships. Some 20% of new vessels ordered in the past year were designed to use a non-oil based fuel, with LNG accounting for 78% of those, or 16% overall.
"Clearly, for ocean shipping, LNG is the winner of the alternative fuel race for the moment, and that should continue to an even greater extent in the coming year," he said.
If LNG is on the rise, consolidation may not be. After a banner year for mergers and acquisitions that saw such combinations as International Seaways' takeover of Diamond S Shipping, Hafnia Shipping with Navig8 Chemical and Angeliki Frangou's Navios manoeuvres, the tide has turned.
"Certainly there are candidates for continued consolidation in shipping this year, but much of the low-hanging fruit has been picked, in our view," Nolan writes.
And what of Nolan's 2021 picks? The analyst connected on four of 10, which exceeds his success benchmark on the baseball basis.
One big score was his prediction of a shipping initial public offering, which had been missing from the US market since 2015. Israeli liner company Zim ended the drought in February.
And while the IPO itself was tepid at a $15 share price, the timing proved perfect as the share gained 366%. Put another way, Zim raised only $218m in the IPO, but paid a dividend of almost $300m in the fourth quarter.
One that did not go quite as well: Nolan had predicted West Ham to notch its first English Premier League title, but the Hammers finished sixth, well behind champions Manchester City.
For what it is worth, the analyst sees the South Sydney Rabbitohs taking Australia's National Rugby League crown in 2022.
