Downturn will be brutal but short-lived, says broker

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Mike Grinter, Hong Kong - Friday 16 January 2009

A GATHERING of gloomy members of the Hong Kong Shipowners’ Association had to take what consolation they could from the financial crisis when a panel of industry experts told them it would be brutal but relatively short-lived.
Robert Clancy, managing director of global broker Arrow Shipping, said that the magnitude of the downturn might be greater than anybody had experienced previously but the causes were very similar. 
“I do not believe we are going back to a long depression as in the 1980’s, when it was a long, drawn out death. People and companies bled to death over months and years. It took the banks a great deal of time to recognise they were sitting on bad debts and no one had ever heard of mark to market,” he said. 
“We are fortunate that, unlike in the 1980s, every government in the world is trying to save its economy. In effect, every government in the world is actually trying to reflate the bubble, and they might succeed.” 
Mr Clancy said that the reversion to Keynsian economics and the decision by virtually every significant government in the world to commit to massive infrastructure investment and zero interest rates “will eventually have an impact on demand for several bulk commodities”. 
“We are witnessing a very brutal global deleveraging and good or bad we are all going to know where we stand within months and not years. The accounting principles have changed and no one can hide anything, and solutions will be found quickly.” 
In attempting to analyse how shipping had got into the quandary it has in the first place, Mr Clancy alleged that the massive expansion of the steel industry in China and the subsequent enormous growth in iron ore demand was only half the answer. 
“The reason we have gone from boom to bust so fast is that we have had an unprecedented amount of liquidity thrown at our industry as a result of Wall Street’s enthusiastic sponsorship of the commodity boom. The moment that Alan Greenspan suggested that he used the Baltic Freight Index as one of his indicators of global financial health, our fate was sealed.”