IHS FAIRPLAY

Danish Maritime Days 2016

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Fairplay.IHS.com | October 2016 | 23 thefirstdominototoppleorwhetheritscollapsehas spurredasenseofurgency. TheheadlineofSkou'sstatementisthatMaersk Groupishavingtocutitscoattosuititscloth,however theunderlyingsubtextismuchmoreinteresting.The familyofAneMærskMc-KinneyUggla,whochairsthe familyfoundation,togetherwithhersonRobert, recentlyinstalledaschiefexecutiveofMaersk's controllingshareholder,andwiththebackingof MaerskchairmanMichaelPramRasmussen,hastaken thelongview.Theywanttoremaindeeplyinvolvedin shipping,andwilldosofromapositionofstrength. Thatmeanstakingcontrolofthebusinessatatime whenallaroundseemtobewaitingforleadership. Shutterstock the heart of the maritime dilemma when he observed that the key to making a good forecast is in "not limiting yourself to quantitative information". There's as much reason for believing the dry market will pick up in 2018 as there is in believing the opposite. Even if that's an accurate forecast, higher oil prices will lead to increased bunker prices, and therefore higher operating costs. This will cut into higher freight rates. Demand for vessel capacity will need to rise very much more than supply if the industry is to pull away from the current trough. Numbers never tell the whole story. Statistics are dry without the context in which they were generated. Qualitative information needs a quantitative background. The most reliable way to forecast the future is to try to understand the present – in terms of context. It's that context that is missing, and this has consequences. In Maritime Economics – a macroeconomic approach, published two years ago, Lambros Varnavidis, former global head of shipping at Royal Bank of Scotland, and University of Cambridge academic Elias Karakitsos talk about irrational volatility of expectations of demand for shipping services, which they call "animal spirits". This is due to a "herd syndrome that induces a swing in expectations between optimism and pessimism governed by greed and fear". At last, an understanding that cycles have less to do with ships and commodities, or even with management, than with investors' dread of being left behind. It's human instinct to suspect everybody else has an insight we don't have, so we watch for decisions and follow. It's certainly irrational, and it certainly drives volatility. And the longer freight rates stay at close to historic low levels, the more we pounce on other investors' decisions as the way we have to go. All of which shows that forecasts are much more accurate when they reflect both numbers and context. 'The most reliable way to forecast the future is to understand the present – in terms of context' FAIRPLAY Industry insight

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