Global shipping markets reel as tariff woes, sanctions eclipse fundamentals

Global shipping markets are facing unprecedented disruption and uncertainty as trade tariffs, sanctions, and geopolitical tensions overshadow traditional supply-demand fundamentals, leading shipping industry players warned at a major maritime forum in Fujairah.

As oil prices tumble on fears of a major economic slowdown over trade tensions, markets are uncertain whether the tariffs imposed by US President Donald Trump are meant to be permanent or designed as a pressure tactic, shipping traders and analysts said over the past two days at the International Fujairah Bunkering and Fuel Oil Forum.

But there is no uncertainty that they have caused market chaos. Shipping accounts for about 80% of world trade and JP Morgan estimates there is now a 60% chance of a global recession, up from an earlier 40% risk, following Trump's escalating tariffs on goods from its trading partners.

“Even though they [the US] seem very aggressive at the beginning, they’ll realize they can’t keep this up. We all know Trump is aggressive, but he might have to take steps back,” said Alexander Prokopakis, executive director at the International Bunker Industry Association.

“The market is repricing,” Jeremy Loy, trading manager, fuel oil and feedstocks, for Vitol Asia in Singapore. “All of us are seeing profits that we saw years ago diminish to normal levels again, and there needs to be an understanding of what that might mean going forward.”

An S&P Global Market Intelligence analysis suggests that in a maximum impact scenario involving escalating countermeasures and other adverse factors, global oil demand growth could be cut by about 40% to 750,000 b/d in 2025.

“Under Trump 1.0, we saw trade still move, but the reciprocal tariffs are much higher, and we’ll have to see if they stick,” said Rahul Kapoor, global head of shipping analytics and research at S&P Global Commodity Insights. “The tariffs will lead to demand destruction,” Kapoor said. “We’re going into a very different environment.”

Freight rates

While weaker global demand growth could sap demand for oil and chemical tankers, the biggest impact of trade escalation in the shipping industry will be felt in the container ship sector, the head of energy and marine at National Bank of Fujairah Bilal Hasan Ashraf said.

Tanker freight rates have remained largely unscathed from the escalating trade tensions between the US and China amid growing uncertainty over the scale and pace of any demand-side impact on shipping. Platts assessed the rate to carry a 270,000 mt cargo of crude on a VLCC from the US Gulf Coast to China at $31.48/mt on April 8, down from $32.59/mt on April 2.

Trump in March also said that he wanted to “resurrect” American military and commercial shipbuilding, and in December bipartisan legislation to increase the US commercial fleet by 250 ships in 10 years was introduced.

But the US currently builds around five commercial ships a year, while China builds more than 1,000. US vessels are also more expensive to make, and operating a US vessel can cost up to twice as much as South Korean or Chinese vessels.

“The US isn’t a shipping nation, and they’ll have to realize it,” said Jens Maul Jorgensen, director at Oldendorff Carriers and a board member at Emirates Shipping Association.

Arbitrage potential

For some, the future holds opportunities in the volatility for ports like Fujairah, which is the world's third-largest bunkering hub, supplying almost 8 million mt/year of shipping fuel.

In recent years, commodity traders have benefited from a surge in arbitrage opportunities due to unprecedented volatility and market dislocation following the 2020 coronavirus pandemic and energy sanctions on Russia after 2022.

"Traders love this volatility so this will be good for the trading markets. Whenever trading barriers happen, there has to be a middleman that connects A to B and Fujairah is very good at doing that," said Devki Nandan, managing director of JSW Infrastructure. "Going forward, Fujairah may get more business, more importance because it is connecting parties.”

Shippers have recently adapted to International Maritime Organization rules limiting sulfur in ship fuel to no more than 0.5% from 3.5%, with some ships complying by adding scrubbers to meet emissions rules. Traders also now have to comply with changes in global sanctions and now rising trade tariffs from the US, Canada and China.

“We never had so many sanctions around the world,” Constantinos Capetanakis, chairman of the IBIA and also bunker director at Star Bulk in Athens, said. “We never had so many sanctions at the same time and the tariff environment at the same time.”

In recent days, high sulfur fuel oil prices have tumbled along with crude oil prices. Fujairah 380 CST high sulfur fuel oil was assessed by Platts at $383/mt on April 9, the lowest since Dec. 7, 2023.