The Implications of Macroeconomic Factors in the Future of Hellenic

Shipping Industry – A Systemic Approach in the Analysis of Complex

Decision-Making Process
By Dimitris Cambis
University of Piraeus, Dept. of Business Administration

Abstract: The purpose of the present article is to shade light to the importance of global
macroeconomic aspects to the Shipping Industry and in the Hellenic Shipping Industry in
particular and how Greek Shipowners and the related stakeholders may reduce the negative
impact of the forthcoming unpresented “Perfect Storm” as International Shipping Chamber
titled its last report April 2022.
The “Perfect Storm” consists of monetary, fiscal, geopolitical, energy and international trade
changes which they interact with direct impact in the Shipping industry. The present paper
shall assist all related stakeholders of Greek Shipping to be immunized at the highest given
level and with long term prospect to mitigate market and business risks.

Key Words: Shipping, macroeconomic environment, risk mitigation and international trade.

INTRODUCTION
The orthodoxy of globalization is under strain. The world seems to be tethered to
crisis, or the threat of it. Shipowners and shipping management companies need to
know whether they can still remain global players and, if so, how.
Looking ahead, the challenges are likely to only become more acute. According to the
US National Intelligence Council’s Global trends 2040 report, in the next two decades,
competition for global influence is likely to reach its highest level since the Cold War:
“No single state is likely to dominate all regions or domains, and a broader range of
actors will compete to advance their ideologies, goals, and interests.”
Greek Shipping Industry has proved for decades if not for centuries that knows how
to manage better their fleets and handle successfully both opportunities and global
turmoil. Even though they perfectly understand better than any academic the demand
factors such as: the world economy in terms of GDP, seaborne commodity trades,
average haul, political events, transport costs and the supply factors such as: the world
fleet, fleet productivity, shipbuilding deliveries, scrapping, laid up tonnage and
freight rates they don’t seem, based on their recent investment initiatives followed by
the recent prosperity period, to take into consideration complex and not complicated

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macroeconomic factors1 which might affect them in the long run to what International
Shipping Chamber has described as “Perfect Storm”.
The purpose of the present paper is to identify and interpret these global macro
variables which shall affect the shipping industry and interpret the threat and
opportunities which, in our point of view, should be considered in parallel along with
the traditional supply and demand determinants described above since shipping
industry decision making is a complex and not complicated process (Complex
problems are inherently unpredictable while Complicated problems are always
predictable).

So, let's apply a systemic lens consisted of what I thought would be the most
important macro variables which if added to the complex problems addressed to the
decision-making process of shipping industry stakeholders can help map the
dynamics of the surrounding system, explore the ways in which the relationships
between system components affect its functioning, and ascertain which interventions
in industry at corporate level can lead to better results.

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According to OECD, “one key concern is how best to account for uncertainty while managing greater
complexity and still deliver effective services. To a degree, the answer lies in a policy- making
approach that leads to robust systems and adaptive structures. , “Complex (or wicked) problems are
inherently unpredictable”, as the “relationships between cause and effect are neither linear nor
simplistic”, creating a “complex web” of legacies, due to which the whole is greater than the sum of its
parts (emergent property). Complex problems stem from systems theory, which argues that such
problems cannot be understood and addressed in isolation (Head and Alford, 2015; Rittel and Webber,
1973). The challenge that these problems face both for the private and public sector is that they “cannot
be solved by partial or transactional solutions, but instead require concerted, adaptive and carefully
stewarded approaches”. This holds even more true “in an interconnected world where system
boundaries are difficult to define, (in which) it may no longer be possible to treat any problem as
discrete”. According to the “Cynefin Framework, developed in the early 2000s by IBM for decision
makers, (which) identifies four different contexts: simple, chaotic, complex and complicated. Applying
a systemic lens to complex problems can help map the dynamics of the surrounding system, explore the
ways in which the relationships between system components affect its functioning, and ascertain which
interventions can lead to better results. Systems thinking helps to demonstrate how systems are
structured and how they operate. This requires an understanding of what lies between the different
parts, their relationships and the gaps between the knowns.

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 1. Macroeconomic Factor I.: Fed Behind the Curve
Inflation expectations have been a central factor in models of inflationary dynamics
since the 1960s and 1970s, with the seminal work of Phelps, Friedman, and Lucas, and
they play a key role in New Keynesian dynamic stochastic general equilibrium
(DSGE) models used to inform and evaluate monetary policy. In many inflation
models used by central banks, inflation is driven by three key factors: some measure
of a resource utilization gap (for example, the output gap or unemployment rate gap),
or marginal cost of production; lagged inflation, which captures the inertia in the
inflation process; and expectations of inflation.
According to Coibion, Gorodnichenko, and Ropele (2020) firms do base pricing
decisions on their expectations about inflation, and their research documents that
higher inflation expectations cause firms to raise their prices.
The Federal Reserve’s monetary policy based on its mandate (full employment,
sufficient liquidity and price stability) framework emphasizes the role of well-
anchored inflation expectations in helping to achieve and maintain price stability. In
2012, the FOMC first established its explicit 2 percent longer-run inflation goal.
This implies that central bank communications can play an important role in keeping
inflation expectations anchored and, via this channel, communications can help to
mitigate the persistence of shocks to inflation. It is important to note that if inflation
expectations are stable but are well anchored at levels inconsistent with price stability,
then they would be an impediment to achieving the inflation goal.
“The Fed is so late that it’s looking at two challenges: putting the inflation genie back
into the bottle and it’s looking at not creating too much damage to economic growth
and inequality,” El-Erian, the chief economic adviser at Allianz SE, said on Bloomberg
Television’s Surveillance on Thursday. “It’s going to take some time because the Fed
has been asleep at the wheel,” El-Erian said when asked how long it will take to get
inflation back to the central bank’s 2% target. “The Fed has to focus on inflation and
has to do it in a more committed fashion than it has done it so far.”
Most importantly, El -Erian on his 22 July 2022 article in Bloomberg emphasized the
impact of FED’s miscommunication to the market agents by saying:” The Fed has yet to
make the comprehensive analytical shift from a world dominated for years by deficient
aggregate demand to the current one where deficient aggregate supply plays an important role.
Its monetary policy approach is either still formally governed by the “new
framework” adopted last year that is no longer suitable and should be publicly discarded or
governed by no framework at all, thereby leaving the US and global economy without a much-
needed anchor.
The result of this is a central bank that continuously struggles to properly inform and
influence economic agents, that consistently lags behind markets rather than leads
them, and that could easily fall prey to the even more catastrophic policy mistake of returning
to the 1970s trap of “stop-go” policies.”

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Despite increasingly aggressive moves (January, 0.25%, +25bps in March, +50bps in
May, +75bps in June +75bps, July +75bps, September +75bps and November +75bps -
current Fed Funds rate 4%) the Fed remains behind the curve on inflation. Fed’s
persisting narrative, regarding inflation, transformed from “transitory” in 2020-21 to
“persisting” and its aggressive increase in Fed Funds rate aim to reduce money
supply (which does not work as per Macro Factor II: M1 supply, see below). But
above all, as noted, the Fed made its bed when it chose to avoid the risk of tightening
too early—and perhaps even in going too hard on stimulus in the first place. In that
respect, the forces set in motion in 2020 are simply coming full circle.

1. Supply issues disappear if demand disappears; and 2. The risks are not so much in
today's inflation, but in the prospect that a surge in inflation triggers inflation
expectations (at 40-year highs) spiral where the expectation of higher inflation becomes
a self-reinforcing, self-fulfilling feedback loop.

The following two diagrams of Federal Reserve Bank of Cleveland and Atlanta
support further that Fed Rate is behind the curve and FOMC has hard decisions ahead
to increase aggresively the rates above inflation rate at some point of time which
might take long due to inflation expextations while the damage in the market shall be
harsh and far from the expectation of “soft landing”.

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5
Based on these charts we could make an assertion that the Fed has fallen behind the curve. Ag
ainst that there is the argument that other factors are important too, and not to mention the po
int that the Fed basically decided to position itself behind the curve to try and prevent the mis
take of tightening too soon. With the composite measure of inflation expectations at 40year hi
ghs it’s fair to suggest that the Fed may have some catching up to do as it kicks off
the transition away from easing."

Federal Reserve of Atlanta tool estimates the market-implied probabilities of various

ranges for the three-month average fed funds rate. Their methodology uses data on
three-month Eurodollar futures, options on three-month Eurodollar futures from the
Chicago Mercantile Exchange (CME), three-month LIBOR/fed funds basis swap
spreads expiring in 12 months, and the Treasury yield curve. By comparing their
calculations in September vs November, it is evident that even in such sort period of
time projections have not been justified and Fed rates remains behind the Curve.
Why Macro Variable I, is important from a systemic point of view for shipping
industry participants if added to the complex problems addressed to the decision-
making process of shipping industry stakeholders:
1. Fed Funds shall be increased during 2023 and this shall increase the funding
cost of the industry,
2. Inflation shall continue to hinch higher, ceteris paribus, and this shall affect
GDP output and shall affect directy consumption, industrial consumption and
volume of international trade
3. Furthermore, risk appetite shall be decreased as long as public debts yiels are
increasing and stock indexes retrechment to lower multiples, due to lower
expected profits and higher risk premia, shall be on the table and subsequently
funding of listed shipping companies shall be limited and expensive.
4. We insist that macro factor I is prudent to be considered in the complex
problems shipping companies are facing today since according to the article
“THE INFLATION EXPECTATIONS OF U.S. FIRMS: EVIDENCE FROM A
NEW SURVEY” by Bernardo Candia, Olivier Coibion and Yuriy
Gorodnichenko, Working Paper 28836, http://www.nber.org/papers/w28836,
whereas the CEOs of 1,198 firms interviewed through Survey of Firms’
Inflation Expectations (“SoFIE”) U.S. managers are largely uninformed about
recent aggregate inflation dynamics or monetary policy. Result: complement
existing evidence on firms’ inflation expectations from other countries and
confirm that inattention to inflation and monetary policy is pervasive among
U.S. firms as well. US Managers are either ignore or they are aligned on Fed’s
narrative on inflation “transitory” or “short-term” implications of inflation rate.
And even worst the perception (misleading) of Fourth Quarter 2021 Survey of
Professional Forecasters of Philadelphia Fed (Fourth Quarter 2021 Survey of
Professional Forecasters (philadelphiafed.org).

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 5. In the risk mapping Macro Variable 1 has hifh risk probability and high Risk
Impact to the Shipping Industry and Companies irrespectively of their non
systemic risk.

2. Macroeconomic Factor II.: Real Interest Rates

A real interest rate is an inflation-adjusted interest rate. You might think of a real
interest rate as the price of borrowing in goods, not money. Because people and firms
make decisions based on real quantities, not nominal quantities, real interest rates are
more useful than nominal interest rates. For example, real interest rates are much
more informative than nominal interest rates about the stance of monetary policy.

Technically, a gross real interest rate (1+r) is calculated as the ratio of gross nominal
rates (1+i) to the gross inflation rate (1+π): (1+r) = (1+i) / (1+π)

Suppose that the cost of MGO/tn on January 1, 2022 was $1,000. The lender could use
the $1,000 to buy 1MT MGO, but forgoes the purchase to make a loan of $1000
instead. When the borrower repays the loan at 5% interest on January 1, 2023, the
lender receives $1005 dollars. If inflation has raised the price of MGO by 10% by
January 1, 2023, then each MGA/tn costs $1,100 and the lender can buy only 0,95 tns
of MGO: 1,005/1.1 = 95.4545. The gross real rate of return equals the real goods one
can buy with the payoff from the loan (95.4545 MGO tn) over the initial real value of
the loan (1 MGO tn). So, the gross real rate of interest is 95.4545/1000 = 1.05/1.10 =
(1+i)/(1+π).

This is often approximated as the interest rate minus the inflation rate: r ≅ i – π

This approximation is generally useful for relatively low rates of interest and inflation.
With the example above, it would be -5% = 5% – 10%. And yes, real interest rates can
be negative.

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The term premium is the amount by which the yield on a long-term bond is greater
than the yield on shorter-term bonds. This premium reflects the amount investors
expect to be compensated for lending for longer periods. Because U.S. Treasuries
come in a variety of maturities, we can take the differences between the various yields
to measure the term premium. Above is a FRED graph with the 10-year Treasury yield
less the 2-year Treasury yield. The 10-year yield is often greater than the 2-year,
usually with a drop preceding recession. A drop into negative territory, when the 10-
year yield is lower than the 2-year yield, is often called a “yield curve inversion” and
constitutes another confirmation that we are in a recession and investors have already
priced in the risk premium.

Why Macro Variable II, is important from a systemic point of view for shipping
industry participants if added to the complex problems addressed to the decision-
making process of shipping industry stakeholders:
1. Negative real interest rates don’t support Fed’s target of tightening M1 (money
supply) which support further inflationary pressures and finally recession
which is well beyond stagflation.
2. Negative real interest rates also shall affect DXY (which measures the value of
the US Dollar versus a basket of global currencies namely: EURUSD, USDJPY,
GBPUSD, CADUSD, USDCHF and USDSEC) which represents the real PPP
(Purchasing Power Parity) of USD against the basket currencies. DXY in market
turmoils is strenghthen as “safe heaven” eg for 2022 52 wk Range was 94.63-
114.78. The PPP of USD is very important for shipping decision makers since the
majority of their trades and investment are in USD and hedging instruments have to be
considered for their protection from FX exposure.

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 3. Macroeconomic Factor III.: OECD Area – Composite Leading
Indicators

The OECD Composite Leading Indicators (CLIs), designed to anticipate turning

points in economic activity over the next six to nine months, continue to point to a
deteriorating outlook in most major economies.

Dragged down by historically high inflation, low consumer confidence and declining
share price indices, the CLIs remain below trend and continue to anticipate a loss of
growth momentum in most large OECD economies. This is the case for Canada, the
United Kingdom and the United States, as well as in the euro area as a whole
including France, Germany and Italy. In Japan, the CLI continues to point to stable
growth around trend.

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Among major emerging-market economies, the CLI is still declining in China
(industrial sector), though showing signs of stabilization after latest political
developments to support real estate sector and the encouraging discussions
between US and China to ease tensions. In India, the assessment remains for stable
growth, whereas in Brazil the CLI continues to point to slowing growth.

The OECD composite leading indicators are cyclical indicators based on a range of
forward-looking indicators such as order books, building permits, confidence
indicators, long-term interest rates, new car registrations and many more. Most
indicators are available up to July 2022.

Persisting uncertainties related to the war in Ukraine, renewed COVID-19 threats,

supply chain disruptions and the impact of high inflation on real household income
are resulting in larger-than-usual fluctuations in the CLI components. As a result, the
indicators should be interpreted with care and their magnitude should be regarded as
an indication of the strength of the signal rather than as a measure of growth in
economic activity. Certain traditional shipping routes for dry and wet cargoes are in
jeopardy dur to sanctions in Russia. Obviously, Eurozone economies are mostly
affected in comparison to US economy due to energy supply disruptions and CPI in
Eurozone is and shall remain in double digit level for long period of time till
alternative sustainable energy sources are secured. There are main differences
between US and EU fiscal and monetary policies and despite the “immunity” of US
economy which is supported by the pivotal global role of USD as global reserve
currency and the size of US economy, US debt is unsustainable and shall take years to
be reversed2

2
The Executive Summary to the Fiscal Year 2021 Financial Report of U.S. Government “An Unsustainable Fiscal
Path” clearly states and explain why “the current fiscal path is unsustainable”. In the same report (Financial
Report of the United States Government (treasury.gov) (p. 3 just prior to Table 2) is concluded :“The 75-year
fiscal gap is a measure of how much primary deficits must be reduced over the next 75 years in order to make
fiscal policy sustainable. That estimated fiscal gap for 2021 is 6.2 percent of GDP (compared to 5.4 percent for
2020). This estimate implies that making fiscal policy sustainable over the next 75 years would require some

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combination of spending reductions and receipt increases that equals 6.2 percent of GDP on average over the
next 75 years. The fiscal gap represents 32.4 percent of 75-year PV receipts and 25.0 percent of 75-year PV non-
interest spending”. The same conclusion from different methodological process (DCF) is presented in Measuring
U.S. Fiscal Capacity using Discounted Cash Flow Analysis | NBER April 2022 issue, whereas the authors conclude
using different assumptions and scenarios including the seigniorage revenue on Treasuries, is a constant fraction
of GDP, that US Debt is viable to 1/3 from its current level. Even their assumptions are debatable, in my humble
point of view because of the ambiguity of their assumptions, they derive to similar conclusions with those of US
Treasury Report. to the Summary to the Fiscal Year 2021 Financial Report of U.S. Government. In particular: (end
of p.2) “Our final estimate for the upper bound on fiscal capacity is around $13.7 trillion in 2021, or 60% of
2021 GDP, well short of the actual $23.5 trillion value of all U.S. Treasuries outstanding”.

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Why Macroeconomic Variable III, is important from a systemic point of view for
shipping industry participants if added to the complex problems addressed to the
decision-making process of shipping industry stakeholders:
1. Assuming that major component in Composite Leading Indicators (CLIs) is GDP,
even though we disagree about its importance and we are not the only ones 3,
according to the tool of GDP we have it is expected a lower utilization of production
units, lower consumption, lower growth and subsequently the shipping volume
(specially dry cargo) shall be decreased along with the freight prices in real (deflated)
prices while the cost of capital is increasing (at least twofold) and scrap prices shall
decrease as well.
2. The question is for how long this shall last and if this shall be a global phenomenon.
Given how fragile the financial system is and how much indebted the American
economy is, it’s almost certain that the current monetary policy tightening will lead to
a sovereign-debt crisis and/or another kind of financial crisis.
3. Countries at the periphery shall have severe consequences which shall in a spillover
effect further affect the global financial and international trade. Inflation in Emerging
and Developing Economies (Periphery) shall drive Central Banks adopting similar
deflationary policies which shall face intensifying economic (mainly local currency
devaluation) problems and financial volatility since they are lacking institutional
credibility and maturity and their CDS shall lead to IMF’s hands sooner or later (read
relative reports of World Economic Forum and World Bank)
4. The peripheral economies’ problem is also a challenge for ECB since it operates
in a more difficult context because of the weaker regional economy and the risk
of “spread fragmentation,” (eg Portugal. Italy, Greece their 10yr bonds’ yield
has 4tripled in the last 12 months) which is also applied even for the Germany’s
10y bond yield which has been skyrocket in less than 9 months (from negative
yield to an average of 2% yield).
5. Therefore, the answer to question two is risky to predict but most likely shall
last for long to return in 2020 or pre-pandemic levels (see Jon Danielsson,
Marcela Valenzuela, and Ilknur Zer (2022); A number of studies have identified
a positive relationship between world GDP and freight rates and vice versa
(e.g. Başer and Açık, 2019; Akbulaev and Bayramli, 2020; Michail, 2020; Özer et
al., 2020; Efes, 2021)

3
Drawing on the notion of Kolmogorov complexity in information theory, we conceive of an object’s complexity
as the length of its efficient representation. For example, in a dynamic game, the inherent complexity of an
action may correspond to the size of the ensuing subgame. The complexity of a contract might be approximated
by the number of non-redundant clauses; and in the context of durable goods, complexity may correspond to
the length of the array of relevant attributes. Scholars like Stiglitz, Blanchard, Diefenbacher question the critical
importance of GDP as single denominator of an economy’s output and welfare.

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 4. Macroeconomic Factor IV.: Government (and Green) Corporate Capex

Capitalism is by nature a form of economic change and not only never is but never
can be stationary. The process of Creative Destruction is the essential fact about
capitalism.... To ignore this central fact is like Hamlet without the Danish prince.
(Schumpeter as quoted in Max Page, The Creative Destruction of Manhattan, 1900-
1940). But in capitalist reality, as distinguished from its textbook picture, it is not
(price) competition which counts but the competition from the new commodity, the
new technology, the source of supply, the new type of organization... competition
which... strikes not at the margins... of the existing firms but at their foundations and
their very lives. (Schumpeter as quoted in Andy Grove, Only the Paranoid Survive,
iii).

According to Schumpeter (1939): “we will simply define innovation as the setting up
of a new production function,” with even mergers included in this definition.
Innovation is the invention, development, and diffusion of new goods, services or
production processes. That is, innovation is the study of how society expands its
production possibilities frontier. Innovation is an economic problem because it

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depends on the active choices of agents who respond to incentives. Finally, the
dynamic economic theory of Schumpeter (1942) argued that the creation and diffusion
of new goods was a more fundamental economic problem than the static Neoclassical
welfare analysis which held the technological frontier constant
The urgency of making progress on unlocking the “black box” of innovation was
clarified with Solow’s blockbuster 1957 paper (Solow, 1957). Solow shows that the
share of long-run economic growth unexplained by changes in capital and labor
inputs, referred to as total factor productivity (TFP), is as high as 85 percent. By
construction, TFP is an unmeasured residual variation in output that cannot be
explained based on observable inputs. However, subsequent work adjusting for labor
quality and capital utilization suggested that much of this “Solow residual” reflects
technological progress. Figure below presents a descriptive plot of TFP and gross
domestic product (GDP) over time, providing one illustration of their co-movement.

The rate and direction of innovation responds to incentives (Schmookler, 1966;

Schumpeter, 1942). This is of course true of all economic objects, the production of
most of which we simply leave to the market. However, in a hugely influential article,
Arrow (1962a) clarifies three fundamental market failures preventing laissez faire
efficiency in the production of new ideas. Arrow begins with the general equilibrium
welfare theorems. Market equilibria are Pareto efficient as long as a set of well-known
assumptions hold. Three of these assumptions are particularly important: the
production transformation set should be convex, the value of the good should not
involve externalities, and production should be deterministic.
The Solow-Swan model assumes an exogenous rate of technological progress, in the
sense of being independent of economic forces. Essentially, the model is driven by a
technological “black box” with no microfoundations for what factors drive
technological change. The natural next step, then, is to microfound this growth as the

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aggregated “endogenous” outcome of firm choice. Endogenous growth models where
technology depends on firm R&D effectively build on two core ideas, one dating to
Alfred Marshall, one to Edward Chamberlin. The Marshallian idea is that ideas are
non-rivalrous, so constant returns to scale technology for the firm production function
of new inventions has increasing returns to scale at the aggregate level (Marshall,
1890).
The Chamberlin idea is that there exist markets without perfect competition. The
quasi-rents (Income one earns on a sunk cost. A quasi-rent occurs when one makes an
investment and pays for it, and then earns income from it without needing to make
further investment. In order to be considered quasi-rent, the income must exceed the
opportunity cost of the investment) that can be earned by successful innovators in
imperfectly competitive markets can provide the incentive to do R&D (Chamberlin,
1962).
Therefore, whether a firm invests depends on whether it is destroying its own
varieties (Arrow’s “replacement effect”) or destroying rival varieties. Further, the
length of time a firm has market power for their inventions depends on the level of
inventive effort other firms exert trying to create an improvement.
Neo-Schumpeterian models, economic growth is a function of the rate of innovation.
In the latter two classes of models, policy around appropriation, invention costs,
intellectual property, and market structure affect that innovation rate, and in turn
affect economic growth. These endogenous and Neo-Schumpeterian growth models
make clear that long-run growth depends critically on the incentives for innovators. If
the benefits of new goods are under appropriated, then we both have fewer things to
consume today and we have fewer ideas to recombine into even better goods
tomorrow. On the other hand, if inventors are given broad property rights over their
inventions and their derivatives, then licensing frictions prevent today’s silicon chips
from becoming tomorrow’s smartphones. This might explain the commercial war
between US and China over certain areas of high-tech companies and their imposed
sanctions to export knowhow and/or depend on Chinese product/components which
at the end are traded by US firms with high value added.

Government (and Green) Capex: The free cost talk from governments and activists
about going to zero carbon (UN Sustainable Development goals, G20, but mostly US
and EU) have preoccupied investors about “dirty fossil fuel” companies which
resulted to dampen investments in oil companies and in their turn to cut CAPEX
which fueled oil prices (well before Russian invasion in Ukraine). You can't sprint into
a post-fossil-fuel world without taking massive action; without investing on an
unprecedented scale...nothing short of a new Manhattan Project style mobilization is
required if you *really* actually want to get it done.

15
There is a great leap, a grand chasm, between where we are and where the grand
energy utopia promised lands lie; shipping industry is a victim as well of this utopia
and one of the cost elements which sent inflation to 2digit levels we realize in our
days and probably years to come. In the present Macro Factor we have analyzed the
role of “creative destruction” and “innovation” which always is needed to be backed
by actual action and this is why free cost-talk is expensive, and one of a few reasons
for pain at the pump.

The following diagram justifies that Government and (Green) Capex in US is falling
behind their promises and goals about zero carbon emissions.

While we focus in Green Capex we should in parallel consider the alarming report by
the American Society of Civil Engineers highlighted $2.6 trillion in unfunded US
infrastructure needs. This estimated investment would move the United States from a
C- rating on infrastructure to a B level. While an estimated $200 bn in private funds
are earmarked for infrastructure, significant gaps exist to improve infrastructure
needs such as rural broadband, aviation, clean water access, hazardous and solid
waste, and transit. If left unfunded, these gaps are expected by ASCE to cost $10
trillion in GDP and three million jobs by 2039.

Corporate Capex: Even capex can't save the day, an initial cyclical rebound looks set
to cap-out and rollover based on the capex leading indicator.

Management of listed and non-listed corporations have to convince investors about

the long run profitability of reinvestment in ESG policies (an analytical report by
Goldman Sachs identifies from their database the CAPEX of listed firms and the
dilemma of profitability ratios vs reinvestment in Green CAPEX).

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While some of the medium/longer-term themes likely continue (e.g., commodity
capex, shipping capex, climate/EV related, space age 2.0, etc.), the cyclical outlook for
capex is clearly less certain, and it seems unlikely that any lift in capex will be enough
to offset the looming economic headwinds.
There are a few particular sectors that are likely to see a surge in investment in
response to surging prices – for example, the global shipping sector, and commodity
producers. Both of which have seen capex languish for the past decade, and both of
which have seen an effective windfall from the pandemic (i.e. surging shipping rates
and commodity prices). Are they sustainable or shall be trapped in the “Perfect Storm”
as International Shipping Chamber which is reality and rather unavoidable based on our
present analysis.

We would rather rephrase the question; “what type of democracy we would like to
have and what shall be the “role” of the State in the 21st century?
The Keynesian and Neo-Keynesian economic doctrines have brought to the edge all
major economies’ public debt (which is unsustainable), increased the gap between
below poverty line percentage of population and very wealthy (Suresh Naidu, Rajiv
Sethi and Sarah Thomas), increased uncertainty across all asset classes and foremost
have but in jeopardy the role and validity of institutions like Central banks which
seem like the scared and naked Kings. Dani Rodrik (Professor of International
Political Economy at Harvard University’s John F. Kennedy School of Government, is
the author of Straight Talk on Trade: Ideas for a Sane World Economy) in a recent post at
Project Syndicate argued: “The right answer to any policy question in economics is, “It
depends.” We need economic analysis and evidence to fill out the details of what the
desired outcome depends upon. The keywords of a truly useful economics are
contingency, contextuality, and non-universality”.

Why Macroeconomic Variable IV, is important from a systemic point of view for
shipping industry participants if added to the complex problems addressed to the
decision-making process of shipping industry stakeholders:

1. ESG Policies and Green CAPEX are and shall remain key themes and
investment criteria to the decades to come.
2. Shipping industry is marked by huge volatility in freight rates and cannot
secure surging shipping rates sustainable enough to finance Green CAPEX
achieving in parallel satisfied shareholders and heavy investments required for
Green CAPEX.
3. The “perfect storm” combines high equity and debt returns, lower freights,
increased inflationary pressures, high oil prices and a weak financial sector to
support shipping companies during this downturn of global economy.

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 4. The resilient Greek Shipping industry has to balance and take advantage on the
one hand of low utilization capacity of major shipbuilding yards in Far East,
subsidized policies from their governments eg China, North Korea, Japan and
on the other hand of external horizontal growth by acquiring fleets from
indebted shipping companies. The role of the Greek Government is pivotal as
long as they support the modernization of Greek Shipyards for maintenance
and repair of the Greek owned fleet, attract global FDI through low or zero tax
policies extended to shipping bonds listed in ASE TAKING ADVANTAGE OF
ESAs (European Supervisory Authorities) technical standards for Sustainable
Finance Disclosure regulation (SFDR).

Macro Factor V: US Asset Class Valuations vs Global Asset Valuations

The FRED graph above plots the cumulative real returns on three major classes of assets held
by U.S. households—stocks, real estate, and corporate bonds—since the last full month before
the pandemic, December 2019. It’s useful to unpack this definition. First, these returns are
cumulative: At each date, they measure the return obtained by someone who purchased the
asset at the initial date (December 2019) and sold it at that given date. Second, these returns
are real, meaning they’re adjusted for inflation.
Commodities valuation indicator has just edged out equities for second place, bonds
are now slightly cheap, but meanwhile equities look reasonable vs expensive bonds vs

18
soaring property prices. What is behind and what shall follow and why:
a. Commodities while not cheap, at least look reasonable by comparison and could
benefit from increased capex and green capex (eg aluminum, steelmakers, cement
industry et al).
b. Mortgage rates are soaring and the happy hour of low mortgage rates is over while
the risk of increased NPLs (Non-Performing Loans) is increased with immediate
impact in financial sector and slowdown construction activity (don’t forget that in UK
the short-lived Minister of Exchequer had provisioned that a quarter of UK citizens
shall be homeless due to increased mortgages and unaffordable public utility bills due
to soaring inflation.

c. Economy slowdown, the lowest ever velocity of M2 (The velocity of money is the
frequency at which one unit of currency is used to purchase domestically- produced
goods and services within a given time period. In other words, it is the number of
times one dollar is spent to buy goods and services per unit of time) shall result in
unemployment increase and lower utilization of manufacturing capacity and

d. Corporate profits shall not meet investors expectations (At its peak at the end of
2021, the real cumulative return on the S&P 500 index was around 36%. Cumulative
returns have fallen since then, but were equal to 5% as of September 2022) and

19
Corporate bonds cumulative return peaked at 8% at the end of 2020, but had
underperform ever since due to high-inflation situation.

The above diagram indicates the lowest since 1980s Business Tendency Surveys for
Manufacturing: Confidence Indicators: Composite Indicators: OECD Indicator for the
United States-Median Consumer Price Index. Canaveral, we have problem….

On the other side of the Atlantic things shall become worst due to shortage in energy
supplies and the sanctions levied to Russia due to its invasion in Ukraine. EU shall
pay the heavy bill of these actions in macro, microeconomic and social welfare levels.
Below diagram reveals the ECB Assets increase (double) during the pandemic period
and the applied aggressive and extensive quantitative easing program for repurchase
of almost all types of bonds, irrespectively of their rating.

20
Graph by https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/EU

As per following graphs decrease of GDP in developed countries shall affect directly
the LDCs (Less Developed Countries) and underdeveloped by exporting the inflation
to them and by decreasing their PPP (Purchasing Power Parity). At the end of this
global restructuring in international economy they shall pay the heavy bill and we
shall be responsible for the global social unrest that shall follow 4. Current illegal
immigration problems shall look as a wishful thinking since they have no access to
any capital markets and are banded legally (through sanctions) or literally by
sovereign low ratings in capital markets access. We have created a dichotomy in the
global markets; the good, the bad and the ugly. Pricing of global listed companies is
guided by geopolitical decisions and they create disturbances in the operation of the
markets against the prosperity of the people, globally. We don’t need to provide
explanation to the following graph which explain why US dominates global markets
and shall continue to do so till we resolve resources and international competitive
advantage recognition and allocation.

4
According to Albert Hirschman, the problem developing countries face is the weakness of their investment
capacity. Contrary to what is assumed by approaches based on balanced growth mod, the determinants of
saving and investment in underdeveloped countries are independent. As a result, situations occur where virtual
saving is frustrated, while investment opportunities are real. Hence, the objective of any development theory
must be to account for these situations, and to offer the means of increasing the investment capacity. While in
every situation, serious obstacles to the development process should be expected (such as uncertainty, social
cost, etc.), Hirschman counts on what he refers to as investment complementarity, a notion close to that of the
multiplier effect.

21
22
Graph by:
https://www.imf.org/external/datamapper/GGCB_G01_PGDP_PT@FM/ADVEC/
FM_EMG/FM_LIDC

Why Macroeconomic Variable V, is important from a systemic point of view for

shipping industry participants if added to the complex problems addressed to the
decision-making process of shipping industry stakeholders:

23
 1. All asset classes are going to suffer losses for substantial period of time due to
huge public debt accumulated during the pandemic (2020-2022), shocks in the
equity and bond markets due to rising central bank basic rates, persisting
inflation rate to quadruple level to targeted inflation rate by central banks and
mainly negative consumer sentiment which is depicted in the confidence
indicators and the lowest velocity of M2 Money stock since 1960’s.

2. Shipping industry is get used to storms and Greek Shipping has thrived in such
turbulent environment, but this time is different and valuation of shipping
assets {“The valuation conundrum”} shall deteriorate for some extensive period
of time and high leveraged shipping companies should be vigilant and well
prepared to mitigate these risks and avoid debt defaults by restructuring and
extending the tenor of their loans.

Macro Factor VI: PPI (Producer Price Index)

Why PPI is important for shipping freights?

Shipping as a servicer to the global supply chain is an important component but fully
dependent from the producer and/or trader. Price elasticity of the products in
different markets and periods formulate respectively the final price of the goods sold
and freights always are squeezed or increased based on the scarcity (eg LNG carriers
freights, see below diagram).

24
Obviously, the freight volatility depends from the total tonnage available and the mixture of
long-term contracts and spot tonnage. In our example the mixture of the 630-strong LNG
carrier fleet is deployed on long-term contracts beyond 10 years under vertically integrated
business models from gas producers and importers while spot LNG cargoes comprised about
40% of the 356m tonnes shipped in 2020 according to figures from industry group
International Group of LNG Importers.

The graph above shows the producer price index since 1913. It measures the cost of
items used in the production process and is thus different from the consumer price
index, which measures the cost of final goods to consumers. Two aspects of the graph
are striking: Prices have increased quite a bit since 1913, and prices in recent years
seem to be subject to wild fluctuations. There’s no doubt the ups and downs of
commodity prices such as oil and metals have an effect here, but are the recent years
really as wild as they look?

In part, the second observation is a consequence of the first. Prices now are roughly 18
times greater than those in 1913.

Why Macroeconomic Variable VI, is important from a systemic point of view for
shipping industry participants if added to the complex problems addressed to the
decision-making process of shipping industry stakeholders

1. PPI formulates to a great extent the basis for pricing goods. Price elasticity to
the various categories of products which are elastic are directly affected by the
available disposable income. Since we have discussed above for the evidenced

25
 recession and lowest money velocity, global trade in terms of volume is going
to shrink (except certain inelastic categories) and respectively freights.
2. Taking into account the question is when is the right time to expand (buy 2 nd
hand or place an order for newbuilding) a shipping company’s fleet? There is
no single “right” answer but definitely when equity markets shall correct by
25-30% and yields of 10year government bonds are above current inflation rate.
3. The next question related to PPI is the choice between long term contracts
and/or spot market and what might be the safe margin for each type during
the recession period? The answer is: depends from the risk profile of the
shipping company which lead to either long term contract for the whole fleet to
mitigate risks and remain above breakeven point for a period of 3 years
minimum. Cost of capital is a basic determinant due to the capital-intensive
nature of the industry and therefore spot market choice has the prerequisite of
sufficient free cash flow to support any potential operational losses for freights
below breakeven price.

SUMMARY

The present paper has revealed the importance of a systemic approach to handle
complex problems. Our application of the said methodology was the analysis of the
major macroeconomic factors to the economy with case study the shipping industry
and in particular the Greek Shipping industry as a key global player.

We hope that the present shall assist decision makers to enhance the spectrum of
parameters under consideration to resolve complex problems and the proper strategic
decisions for their organizations in a dynamic time frame.

26
27
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