Since Donald Trump became the president-elect a couple of weeks ago there have been some big moves in financial markets, not least the global shipping industry. The Baltic Dry Index, a measure of commodity shipping costs traded at lifetime highs in the middle of 2008 at around 9,500, only to hit a 21 year low of 774, 6 months later after the GFC. After touching that low the market did bounce back to around 3,700 in June 2009, however from that time until the first quarter of 2016 it has steadily declined, touching 290 in February this year. All has changed over the last few days however as the exchange has surged to a 2 year high.
The market did start to recover at the end of the first quarter of this year, probably due to efforts by Beijing to stimulate the Chinese economy; however the election of Trump, with his promise of fiscal stimulus, infrastructure spending and tax cuts has really ignited the shipping industry. Over the last few years demand for bulk carriers has stagnated, slowly reducing from a stable 3-4% a year to no growth at all last year. This reduction in demand has led to consolidation, bankruptcy and under-investment among shipping companies. After years of the industry being in the doldrums there may now be a ray of hope; especially for the smaller companies.
Also today we have the Confederation of British Industry’s (CBI) annual conference in London. This will be the first CBI conference since the Brexit vote. At the conference Prime Minister Theresa May will again state that the government's aim is to have the lowest corporation tax among the world's 20 largest economies, currently at 20%, however due to be reduced to 17% by 2020. According to some press reports May is looking to go even further, matching Trump plans to introduce a 15% corporation tax rate. The reduction in the tax will be part of a new multi-point industrial strategy, pledging to spend money on technology, science and research, along with reigning in excessive executive pay and having workers on company boards. She is to tell the conference that ‘Our modern Industrial Strategy will be ambitious for business and ambitious for Britain’. There will also be a review of tax incentives aimed at research and development to try to ensure innovators, scientists, technology investors and entrepreneurs use the UK as their global base.
The term ‘Industrial Strategy’ does not go down well with critics of the idea, bringing back memories of trying to keep state run industries afloat in the 70s ultimately to no avail. May argued that it is not about ‘propping up failing industries or picking winners’ adding 'It is about backing those winners all the way, to encourage them to invest in the long-term future of Britain. And about delivering jobs and economic growth to every community and corner of the country.' A lot easier said than done given the current global climate and the uncertainty surrounding Brexit, although the news this morning that Facebook will increase its UK headcount by 50% by recruiting 500 new staff and will make the UK a technology hub will be welcome news to the government as it continues to stress ‘the UK is open for business’ after the Brexit result.