Will somebody please tell commodity shippers there’s a trade war going on?

Whether it’s the price of hiring giant freighters to haul hundreds of millions of tons a year of iron ore and coal, or smaller carriers moving grains, there’s a theme emerging: dry-bulk shipping rates are rallying despite an escalating trade war that may yet damage China’s economy.

“Freight traders don’t believe in that,” said Eirik Haavaldsen, a shipping analyst at Pareto Securities AS in Oslo. “They don’t see that weakness. They are not afraid of China slowing down, or a massive drawdown in inventories.”

There are two main reasons why commodity shipping markets aren’t yet feeling the pinch, according to Espen Fjermestad, who follows shipowners at Fearnley Securities in Oslo. The first is that China’s economy is so far proving resilient, the second is that direct trade between the U.S. and the Asian country is relatively small within the context of overall commodity shipping demand.

Economic Indicator?

Last year, the single biggest agricultural trade between the U.S. and China was soybeans, at 32.9 million tons, data from ITC Trade Map show. Dry-bulk is the largest cargo set in the global shipping industry and will account for about 5.2 billion tons of trade in 2018, according to estimates from Clarkson Research Services Ltd. Total seaborne trade—from oil and gas to containerized goods—will amount to just under 12 billion tons.

Dry-bulk shipping is often viewed as a leading economic indicator because the cargoes represent the very first building blocks for industrial production, whether that’s iron ore to make steel, cement to build roads, or coal to fire power plants. China, the highest-profile target of U.S. President Donald Trump’s trade tariffs, is by far the world’s biggest source of demand—and demand growth—when it comes to raw materials.

Infrastructure Spend

The freight traders’ bullishness may also be because they take the view that China will invest in physical infrastructure to prop up its economy if a trade war with the U.S. does escalate, something that would be bullish, at least in the short term, for the flow of cargoes, according to Haavaldsen.

So far at least, rates for smaller ships that haul agricultural products have been fairly immune from the spat too, despite signs they could take a bigger direct hit than the wider dry-bulk market, he said.

Supramax carriers, typically about a quarter of the size of Capesizes and more commonly used for grain trading, earned an average of about $10,800 a day since the start of 2018, the best rates they’ve commanded since 2011. Contracts for 2019 are higher, at almost $12,000.

On Friday, the U.S. is scheduled to impose tariffs on $34 billion of Chinese goods. Beijing has said it will place tariffs on an equal value of U.S. exports including agricultural and auto exports. While that might erode trade because China is a key buyer of U.S. soybeans, shipments would likely be diverted elsewhere and probably wouldn’t drop to zero, said Jo Ringheim, an analyst at Arctic Securities A/S in Oslo.

Spot shipping rates are normally a function of how many vessels there are compared with the amount of cargo, and forward prices are heavily influenced by what’s going on in the day-to-day charter market. That means vessel supply is a huge driver too, and consequently freight costs can rally when demand is unspectacular so long as enough carriers are being scrapped and new ones aren’t joining the fleet.

Tougher Times

Other parts of the maritime market are having a tougher time, albeit for different reasons. Returns for supertankers delivering Middle East oil to Asia averaged about $11,000, the lowest for a first half of a year since 2013, according to data compiled by Bloomberg. That market is being hurt by oil production curbs led by OPEC, which, despite being eased last month, could still keep almost a supertanker a day of crude off the market for the remainder of this year.

Shares of Hapag-Lloyd AG, the German container shipping line, plunged at the end of last month, leading similar companies lower, when it warned that overcapacity in the industry and rising fuel costs would put a squeeze on profit. It didn’t mention any impact on world trade from Trump’s measures. A total of 54.2 million boxes moved by sea in the first four months, a 4.6 percent gain from a year earlier, World Liner Data Ltd. figures show.

Investors in shipping stocks are in general more concerned about the impact of a trade war than freight traders are, said Ringheim.

Shares in A.P. Moller-Maersk A/S, the largest container line, dropped about 40 percent over the past year. Those of Golden Ocean Group Ltd., a big dry-bulk shipowner, are up just 7 percent this year in Oslo despite a 32 percent surge in forward freight agreements used to hedge, or bet on, Capesize rates in 2019.

“What we have seen is that the dry-bulk FFAs, which we look at every day, have increased a lot,” said Ringheim. “So in my view, the market expectations for the long term have increased, rather than decreased, even though this is a period where we’ve heard about a trade war.”