When being rational is irrational

Risk management is key to survival once the lunatics have taken over the market, writes Pierre Aury.

Two ships for one cargo and freight is going through the floor. Two cargoes for one ship and freight is going through the roof. Spot shipping is simply supply and demand, stupid. 

The next implied step in the quest for the holy grail of predicting accurately the market in order to make a fortune, is to use all these fancy new AI-powered and/or big data toys. A case of crunch data, baby, crunch data! The theory is as well that the market is “naturally” balanced and moves away from its position only when disrupted. Once the disruption is gone it tends to go back to is “natural” equilibrium. Ever thought about the market being naturally unstable? Probably not, but not because it is not naturally unstable, but because if it was it would make it a lot harder to predict.And especially so because our brains and the tools at our disposal are for the vast majority hard-wired on the linear side of things. 

The problem with all the above is that shipping is not something that one can observe in an adiabatic vessel. Shipping is a derivative of world trade and world trade is a derivative of what politicians decide around the world. 

Crudely put the demand side of spot shipping is directly driven by the whims of the likes of Donald, Vladimir, Emmanuel, Keir, Benjamin, and Kim. It’s not easy to make a predictive linear model based on the observation of data, whatever they could be, which could have some, even modest, chances of being accurate then. 

Let us take the new US president as an example of why trying to be rational is irrational. Who could have thought that just days after moving into the office Donald would threaten to annex Canada, grab Greenland, invade Panama again and ask Ukraine to give its strategic mineral resources to Uncle Sam as a payback for the $110bn or so it has spent so far helping Ukraine since the invasion in February 2022? A clear case of being paid twice for the same thing? Indeed the alleged $110bn has been used by Ukraine mainly to buy US-made military equipment and ammunition. Who would have thought that Donald would start a bromance with Vladimir so quickly, wrong-footing in the process all the other members of NATO who are all now looking like fish out of water? It will be interesting to see how European countries are going to justify mass arrests of tankers belonging to the so-called shadow fleet while at the same time, Donald is saying that Russian oligarchs will be welcome in the US under the new gold card immigration system soon to be implemented for wealthy foreigners. 

Now one thing was highly predictable – new tariffs. But who predicted that Canada and Mexico would be lumped together with China? The cherry on the cake is that there are now talks of imposing up to $1.5m fee per call in the US for Chinese-built ships.

Trying to be rational predicting irrational decisions of other people is already irrational but the prediction is only the beginning, not the end. What really matters is being able to gauge the multiple consequences of each and every prediction: bullish, bearish or neutral? Maybe haruspicy (reading in entrails of dead animals) should be used again? But remember more than ever risk management is key to survival once the lunatics have taken over the market.