In recent months and years, many industries have seen and felt the direct effects of the trade war between the United States of America and China. Most recently both countries worked together to come to a mutual agreement, the Phase I trade deal, to help alleviate some of the downfall from the trade war. One such industry that was feeling the direct effects was the shipping industry.
Brian Ladin of Dallas, Texas, has a rich history as an entrepreneur and investment professional. Most recently, he has been working in the shipping industry through his business, Delos Shipping, a capital provider to the industry that focuses on distressed assets, long-term leases, and cyclical asset plays. With a keen interest in the industry, he has been looking at the trade deal agreements and through his research has found that there are quite a few key points that will directly prove to have a positive impact on the shipping industry.
Trade War History
From the time of his campaign and the very early days of his presidency, U.S. President Donald Trump had made very clear that he found the USA-China trade deals quite unfair towards the U.S. and that this was something he intended on changing. He had been known to criticize this matter for years prior as well, having lobbied to have tariffs changed by the government long before entering politics himself. At that point, he and all his campaigners had promised that there would be carefully laid plans to avoid a trade war, reassuring sectors, including the shipping one, that there would not be a slump in trading and that his changes would bring about a positive impact. Over the next couple of years, Trump and his administration began to impose higher tariffs on China imports, causing China to do the same with tariffs climbing steeply, in some cases up to 25% on billions of dollars’ worth of goods, says Brian Ladin. Through the summer of 2019, China had cancelled over $20 billion worth of agricultural goods, a significant blow to the industry.
Phase I Trade Deal
In September of 2019, both countries started to see and feel the effects of their trade war on their respective economies and finally on October 11, 2019, it was announced that the two countries had reached a tentative Phase I trade deal that would be mutually beneficial. On January 15, 2020, both President Donald Trump and China’s Vice Premier Liu He signed “The Economic and Trade Agreement between the United States of America and the People’s Republic of China” which is set to take effect beginning Valentine’s Day 2020. The trade deal was done completely bilaterally between the two countries, says Brian Ladin, and included multiple different focuses. Top priorities include expanding trade, food, and agricultural products, intellectual property rights, technology transfer, financial services, and exchange rate matters. With a focus on expanding trade and increasing the movement of food and agricultural products, the shipping industry stands to benefit, helping to boost the sector from its recent slowdown.
Dry Bulk Shipping
Brian Ladin explains that this new trade deal will directly benefit the dry bulk demand in shipping the greatest. As part of the deal, the USA has stopped its implementation that was to go into effect late 2019 of a tariff of 15% on $160 billion worth of Chinese goods, including items such as clothes, toys, and electronics. The deal also helps cut back on heavy tariffs that were initially put in place September 1, going from 15% down to 7.5% says Brian Ladin.
With tariffs decreased on both ends, the demand for shipping will inevitably increase. Additionally, the deal also includes that China will purchase $40-$50 billion of agricultural goods from the U.S. yearly over the next two years, up almost 100% of their previous purchasing. The Phase I trade deal is seen as a win for both countries as well as the shipping industry, as it will bring back billions of dollars of goods being traded in an economy that had previously been slumping.
Brian Ladin on Liquid and Energy Shipping
Aside from dry bulk, analysts have been keeping an eye out on the liquid goods as well, including liquefied petroleum gas (LPG), liquefied natural gas (LNG), and petrochemicals. Under the new deal, not all of these are covered; however, China pledges to increase energy imports by $52.4 billion in the coming two years. This will primarily be seen in the crude oil side of shipping, which is to be expected, as China is the largest importer of crude oil, averaging over 10 million barrels per day.
In recent months, Chinese import of U.S. LNG has flat lined and with China having the largest growth in natural gas use, the U.S. could stand to benefit from including this as an export, further bolstering the shipping industry. It is yet to be seen how China plans to reach these goals; however, the sector is staying optimistic about the positive impacts of the deal, says Brian Ladin.