How Shipping Helps Explain the World
August 31, 2023
Shipping researchers J Mintzmyer and James Catlin of Value Investor’s Edge join macro team co-head Jason Rotenberg to discuss the state of global shipping and how it connects to inflation, commodity markets, geopolitical risk, China’s recovery, and other key macro issues.
In most of our research, we focus on a particularly big dynamic impacting markets and economies. Today, we’re doing something a little different. We’re taking a close look at something that’s small on its own but touches many of the most important issues investors are tracking, including inflation, commodity markets, geopolitics, and China’s recovery. That topic? Shipping.
Shipping may be a relatively small sector by itself, but its connection to nearly every part of the global economy makes it an important part of tracking how different themes are developing and a great tool for perceiving issues that may matter a lot down the line. And when something goes wrong—as seen during COVID—shipping can transform from a minor pressure to a very material one.
To explore how shipping connects to the big macro issues we’re watching today, macro team co-head Jason Rotenberg recently sat down for a conversation with shipping researchers J Mintzmyer and James Catlin of Value Investor’s Edge. The conversation covers a wide range of topics, including what shipping tells us about the state of COVID-era supply problems, China’s economy, Europe’s ability to obtain natural gas, the potential for disruption in the oil market, how geopolitics are affecting supply chains, and the impact of ESG and the green energy transition on investment. We hope you enjoy the conversation.
Note: The views of external guests do not necessarily reflect the views of Bridgewater.
TRANSCRIPT
This transcript has been edited for readability.
“I think it’s important to take the lessons that we’ve learned from the container ship cycle, the supply chain crisis that we just had, and remember how that originated. If you go back to 2018 and 2019, you can already see that supply side start to tighten. That’s sort of where we are right now with crude tankers and a little bit as well with refined product tankers: the rates are elevated, but they’re certainly not skyrocketing yet. But that supply side is extremely tight. Every vessel is already working up to its maximum capacity. There are really no more deliveries coming online. 2024 is probably the lightest delivery year we’ve had in the 21st century. So any sort of disruption is going to send those rates sky high. If we see VLCC rates, for instance, if we see those move from—right now, they’re about $40,000 a day. We’ve seen those rates go as high as $200,000 per day. If that happens again, and that’s sustained for a period of, let’s say, 12 to 18 months, you could see an in-market impact to gasoline of $0.20 to $0.25 a gallon, maybe $0.30 a gallon. And this adds up, because that would be the wholesale price and this would certainly add up in industrial demand and in consumer gasoline prices and so forth.”—J Mintzmyer, founder of Value Investor’s Edge
Jake Davidson
I’m Jake Davidson, associate editor of the Daily Observations. In our typical BDOs, what we usually do is take a major pressure on the economy and markets and synthesize it for our readers and listeners. But today, we’re going to do something a little bit different and actually invert that approach to talk about a smaller topic that impacts a wide range of the most important macro issues that global investors are tracking. And that topic that we’re going to discuss is global shipping.
Shipping impacts a small piece of almost everything in the economy. And so it’s a great way to track how different dynamics are developing. And when something goes wrong, as we saw during the COVID pandemic, shipping can become an even bigger influence.
So I’m joined today by the co-head of our macro team, Jason Rotenberg. And Jason, maybe you can explain why shipping is so near and dear to your heart as an investor, because I think people might not always realize exactly how many different huge topics over the past couple of years and through today have involved or do involve shipping in a pretty central way.
Jason Rotenberg
Thanks, Jake. A big part of being macro investors is paying attention to what is happening in the world and just perceiving things that are potential questions that may eventually matter down the line. And I just find global shipping, because it touches so many things, a really good way to raise questions.
Global shipping isn’t a big driver usually of almost any market that we trade. It might be a 2% influence, 5% influence. If you take the container ship example, I think it’s a good one, which is 80% to 90% of global goods go through container shipping. You know, before the pandemic, it might have just been a few percent of the cost of goods—so pretty small. But when it gets constrained, it can become a much larger number. It can go from 3% to 5%, and then if it gets completely blocked, it’s a little bit like oxygen: if you don’t have it, nothing works.
And that’s true across all the different segments that we’re going to talk a little bit about today here. For natural gas, the natural gas carriers are what made Europe survive the winter in Ukraine. So understanding what is happening with supply there and the pricing there is useful. The oil tankers are a way to track how the Russian oil flows are flowing through time. And then the bulk commodities are very helpful in knowing what is happening with Chinese demand. Again, you wouldn’t rely on shipping alone to understand those markets holistically, but it’s a good way to perceive what is happening and raise questions.
Jake Davidson
So what we want to do today is go through some of those topics that Jason just mentioned that are some of the big topics we’re tracking in markets and economies: the supply crunch, European natural gas, potential disruptions in the oil markets, China’s slowdown, the economic impact of the green transition and ESG investing, and what we can learn from shipping about those topics.
And to do that, we’re joined by two shipping experts, J Mintzmyer and James Catlin from Value Investor’s Edge. And so, Jason, I want to turn the conversation over to you, J, and James, and take it from here.
Jason Rotenberg
Thanks, Jake. J and James, thanks for joining me here. I’ve been reading your work now for over five years. We’ve talked a lot about shipping over that time. I’m excited to have you here. Why don’t you guys go ahead and introduce yourselves?
J Mintzmyer
Thanks, Jason. I appreciate you having us on this morning to talk about shipping. I founded a research platform called Value Investor’s Edge back in 2015. We focus exclusively on maritime shipping. So we do equity-level research. We also look a little bit into the fixed-income side of shipping.
But I’m here today with James Catlin. He’s our lead macro analyst. James, if you want to say hello and just introduce yourself and say what you do as well.
James Catlin
I’m James Catlin. I came on board VIE in 2015 as well. I’m more responsible for the top-down analysis. I take the broader markets, figure out what they’re doing, apply that to the market in shipping. And it’s several pieces of a big puzzle that we all try and fit together to bring our macro outlooks to shipping.
And as Jason was saying, maritime trade—people often think of that as a leading indicator for economic activity, and it can be useful in that way. So, I can definitely see why this is interesting for him. And we appreciate his interest.
Jason Rotenberg
In this conversation, we plan to hit a lot of different topics, and we’re going to go through each of the main key segments of shipping as a window into some of the big macro drivers. But I think a good place to start, given the big disruptions over the last couple of years, is where do you see us now being on the container ship disruptions, prices, and how do you see that market playing out in the coming months and years? J, let’s start with you.
J Mintzmyer
Even before COVID hit, we already had a very tight supply situation. The container ship sector had been going to a bear market for about seven or eight years, so there was a culling of the older tonnage. There was very little appetite to invest in new builds and new vessels. The only new vessels that were coming online were some of these larger 14,000- to 20,000-container vessels that were doing almost purely Asia to Europe. There was no investment in any sort of the midsize tonnage and the smaller feeder vessels—that sector was just completely forgotten about.
I guess you could say, to make an analogy, you had the tinder of this tight supply situation, and then COVID was kind of gasoline. And then these port shutdowns and the port congestion were the spark that lit that extreme, extreme dislocation. I think people look back and say, “Well, that was just because of COVID.” Well, yes, COVID was the spark that lit that, but that tightening supply had been building for years and years.
So we all lived through it. We all saw what happened with the shipping rates—that it took about two, two and a half years to get through that. And the reason it took two and a half years, and not just six months or nine months, was because of that extremely tight supply situation. It takes about two, two and a half years to build one of these new vessels. So by the time the liner companies and the operators realized, “Wow, the demand structure has changed, rates are strong, we need to order new vessels”—well, by the time they got to that conclusion, the earliest they could get a ship was the middle of 2023. So they did everything they could to retrofit some of the older vessels to get everything back into service. But it really just took two and a half years for that situation to unwind.
So now, as we’re recording this in August of 2023, we’re past the worst of things, and the supply picture has totally changed. All those owners had panicked and ordered more vessels. The liner companies had done the same. And now we have a very large order book. In fact, it’s the largest order book we’ve seen since 2007.
So on one hand, at this point, we don’t need to worry about any sort of supply chain shortage on the shipping side of the business. But on the other hand, we also have a lot of environmental regulations coming in. So it’s a little bit uncertain how that’s going to pan out. From the shipping side, we’re not necessarily bullish, because there’s a huge supply side. But from the more macro perspective, I don’t think consumers or businesses really need to worry about containerized goods. I think their focus probably needs to be a little bit more on the concerns in bulk commodities and in tanker stuff, and we can get into that later.
Jason Rotenberg
Great. So I think it’s just helpful to talk through some terms. When they’re talking about “current rates,” those are the rates that shipowners are receiving, and obviously when those rates spike, that’s an inflationary influence. Now the “order book” is how many ships are on order by owners, and a “tight market” means that there just isn’t a lot of supply coming, which in the short term will mean that rates are more likely to be higher if there is an increase in demand because there’s not enough supply to meet that demand. And when J refers to a “large order book,” that means the opposite. That means that there is the ability of shipowners to meet demand and is less inflationary.
So if you tie it back to the macro, what we’re seeing now is goods inflation coming down as a lot of these COVID disruptions have come off. It takes a while for some of the input prices to flow through all the way to consumers. We’ve seen goods disinflation in the US. We’re just beginning to see it in other countries. There’s almost certainly more of that ahead.
But as you’re saying, as you look beyond the next 6-12 months, probably the supply situation is much more of a normal market with a lot of supply coming online. And then some of the environmental regulations reducing supply, and you’re just having to net those two things. But the big COVID dynamics are largely behind us.
And when I think about goods prices, probably other drivers beyond the next six months, it’s going to be globalization versus deglobalization. There are going to be other drivers that are going to be impacting that.
Jason Rotenberg
I want to turn now to another shipping sector, which is bulk shipping, which mostly tracks what’s happening with iron ore, coal, and some of the minor other commodities. And the main reason why this is an interesting sector to track from a macro perspective is because it’s the one that’s most closely tied to Chinese demand and a way to see how the Chinese reopening has been playing out. And so it would be helpful, J, to get your thoughts on how you see things playing out there now.
J Mintzmyer
The dry bulk sector, it certainly benefited from some of the COVID disruptions to a smaller degree than we saw with the container side of things. But the main demand driver for dry bulk is always—at least for the last 15 years—has really been China.
And China slowed everything down, of course, with their response to COVID, their zero-COVID policies and lockdowns and those sorts of things. And so when those lockdowns ended last fall, last winter, there was a glimmer of hope for dry bulk. We were all very focused on how much of a reopening we’d see, how much industrial strength would go up, what the manufacturing levels would be, and all those sorts of things. But so far to date, we have not seen a strong demand indicator out of China.
Now in dry bulk, we’re primarily watching two markets: we’re watching iron ore and coal. Those are the major two drivers. You can get a little bit more into the weeds and talk about grains and agro bulks and things like that. But primarily, it’s iron ore and it’s coal, and it’s primarily China that’s driving everything.
And so what we’re seeing right now in the market is a very lackluster level of demand from China. So even though the supply is—I wouldn’t say it’s tight, but it’s tighter than historically, and there are not a lot of future oncoming order books. The forward supply is very tight, very tight, one of the smallest order books we’ve ever seen. But despite that small hurdle, China’s reopening is still not even able to clear that. And that’s what the rates are telling us, and that’s sort of where we’re at right now.
Jason Rotenberg
So why don’t we transition to LNG. And then for us, I think the most interesting dimension there is obviously what’s happening in Europe, the huge inflationary pulse that we had last year with their demand for natural gas, and whether you think that the ability for the world to produce the natural gas and then transport it to Europe and other places is there. So what are you seeing with rates, what are you seeing more broadly in that market, would be useful to know.
James Catlin
So the Russian invasion of Ukraine altered the LNG markets significantly at that point. We had to adjust for Europe banning piped-in natural gas from Russia and basically relying on an increased LNG supply from other nations. And meanwhile, Russia took their natural gas and began shipping it elsewhere. But the big story was how Europe was going to compensate for the shortfall in natural gas.
And so we saw a significant amount of volumes increase over that period. But that was at the expense of Asia, who saw their volumes fall a little bit going into that year as Europe siphoned some off with their increased willingness to pay. Now that things have normalized, we’re seeing the markets return to previous levels, with Europe taking up a slightly greater portion of the LNG cargoes than it had previously done to compensate for that. But we’re returning more toward a market balance at this point.
So looking forward, we have an order book that is fairly high, which I think is around 50% at this point. It sounds huge, but past cargo mile demand growth for LNG has been able to support order books almost as high as that. And we’re again looking out toward 2024, 2025, and beyond, when we see a large influx of liquid natural gas supply coming online here in the United States, which, of course, the United States is very far away from Asia, which is our demand epicenter.
And so we’re going to be seeing a significant gain in cargo mile demand over that period once that supply comes online. So it presents an interesting dynamic going forward, where we have a high degree of supply getting ready to hit the water, but we’re also anticipating almost maximum uptake of that new LNG supply that’s going to be coming online, which should be able to offset a great deal of that. Perhaps J can add some color.
J Mintzmyer
I think you’ve hit most of the high points there, James. Just really boiling it down on LNG. The Russian invasion of Ukraine proved to all the major energy customers around the world that it’s better to have ample shipping supply and it’s better to have ample feed gas stocks than to not. So I think everyone is erring on the side of oversupply.
And I think from a shipowner perspective, obviously we don’t want to see oversupply because that’s going to drive rates down. But I think from a customer perspective, they’re happy to sign on these long 8-, 10-, 12-year contracts for these vessels—even though they might be loss-making, even though they might be far below market in seven or eight years—because energy security is now the imperative. So I think that’s really what’s driving this sort of huge order book, plus very strong rates. Because normally if you saw an order book like this, you would not see customers taking on 6-, 7-, 8-, even 10-, 12-year contracts.
Jason Rotenberg
So the basic point here is that, yes, there is a big demand for natural gas story, and the main question here is whether there will be enough supply to meet it. And so what we’re seeing is increased supply of natural gas coming online in coming years and also huge order books of ships that are also being produced to meet that demand. So it’s much less likely that you’re going to have a supply problem. When you talk about contracts of 12 years, even with high rates, the pipelines, effectively, to connect the natural gas from where it’s being produced to where it’s being demanded are being built, and this is less likely to create an inflationary problem.
I think it would be helpful to touch very briefly on how you’re seeing this winter playing out—because these ships also take a while to be produced—and whether, particularly if you have a colder winter and more demand from Asia, is there a potential for shipping to be a constraint, or do you see very high rates again this winter?
J Mintzmyer
What we’re seeing on the LNG side of things is, I would say, a very adequately supplied market at this point in time. So unless we see some sort of extreme weather event, which of course we’re not expecting and neither are any of the weather forecasters, or we see some extreme geopolitical black swan event—and I mean like a serious escalation of things in Ukraine—we don’t foresee a shortage this winter. I think Europe in particular really reacted last summer and last fall, as they should have, to build up those gas stockpiles, and they have improving infrastructure now.
So we don’t foresee a shortage, and we’re also going to have a lot of tonnage, as we just talked about, coming online over the next few years. So I never want to say we’re 100% clear because, of course, shipping—there are always black swans and those sorts of things happening. But I would say this winter should be fine.
Jason Rotenberg
Good. So what I’m hearing on the natural gas side is that, at least from a shipping supply perspective, not a lot of bottlenecks. Of course, natural gas prices could rise in the winter for other reasons.
Jason Rotenberg
I think this is a good segue to shift to oil tankers, and I think it’s interesting from a few different angles. One, it’s been a good way to track what we’re seeing in terms of the disruptions in the oil market related to the Ukraine invasion. And then, more broadly, I know this is a sector you’re watching closely because you see some potential analogs to what was happening with container ships prior to the COVID spike—meaning this is one of the sectors where there is very little new supply, not just now but for years. And if there’s any disruption or increase in demand, those rates could meaningfully spike and have an inflationary impact.
James Catlin
So crude tankers is one of the more interesting segments right now, along with refined product tankers. Those are two different segments. They carry different products; they’re different segments that we treat separately. They both have very, very thin order books right now—very low order books. It’s not enough to support retirements in the fleet, as well as expected trade growth in the near future. This is indeed a recipe, what we believe, for higher rates going forward over the next few years.
Specifically, we’re focused on the larger class of crude carriers, known as the very large crude carriers—the VLCCs. They carry approximately 2 million barrels of oil. They have the thinnest order book I think I’ve ever seen in any shipping segment or class ever, as long as I’ve been doing this. And since they compose the most capacity on the water, the thin order book is going to have sort of an outsize effect on the overall crude tanker market as a result of that. So this is a supply-side-driven story for the crude tankers. But yes, we’re very excited about that over the next several years.
We’ve seen some new build orders come through for crude tankers, but they’re not going to be hitting the water until 2026, 2027—possibly even later than that. So this is potentially a multiyear story that could be playing out.
J Mintzmyer
I think it’s important to take the lessons that we’ve learned from the container ship cycle—the supply chain crisis that we just had and remember how that originated. If you go back to 2018 and 2019, you can already see that supply side started to tighten. Now, demand was sort of moderate, and so rates were not skyrocketing. So if the rates aren’t skyrocketing, nobody’s paying attention. Maybe some investors like ourselves are, but the customers and end-market consumers, as long as prices aren’t skyrocketing, nobody’s paying attention.
That’s sort of where we are right now with crude tankers and a little bit as well with refined product tankers: the rates are elevated, but they’re certainly not skyrocketing yet. But that supply side is extremely tight, and there’s no relief valve. Every vessel is already working up to its maximum capacity. There are really no more deliveries coming online throughout the rest of 2023. 2024 is probably the lightest delivery year we’ve had in the 21st century. So there’s really no relief valve. So if you have any sort of disruption ongoing, say, next year or into 2025, any sort of disruption is going to send those rates sky high. This probably won’t have as extreme of an impact on consumer pocketbooks like the supply chain crisis did. But if we see VLCC rates, for instance, if we see those move from—right now, they’re about $40,000 a day. There’s precedent in the past. This has already happened several times in the last decade—we’ve seen those rates go as high as $200,000 per day. If that happens again, and that’s sustained for a period of, let’s say, 12 to 18 months, you could see an in-market impact to gasoline of $0.20 to $0.25 a gallon, maybe $0.30 a gallon. This adds up because that would be the wholesale price. And this would certainly add up—in industrial demand and in consumer gasoline prices and so forth.
Jason Rotenberg
Thanks, J. So, in other words, what you’re saying here is that this is one place where you could see some macro inflationary impacts if there are disruptions, though, probably something that won’t approach the magnitude of what we saw with container ships.
J, it would also be helpful to have you describe what you’re seeing in the oil tanker market as a way to track geopolitical disruptions. The sanctions on Russian oil were a good example last year, and I know that this is an area that you’ve spent some time thinking about and tracking in real time.
J Mintzmyer
Yeah, certainly, Jason. And normally I would let James take this question because it’s in his wheelhouse. But I’m also just wrapping up a PhD program at the Harvard Kennedy School, where part of my dissertation actually focused on the impact of sanctions on trade flows. So as part of my research, I actually analyzed the AIS—that’s the GPS for ships. And so I analyzed over 3,000 vessels, their GPS positioning, in the period leading up to the Russian invasion of Ukraine, the post-invasion period, and then the post-sanctions period. So I’ll take this one, even though normally I’d throw that over to James.
So what we certainly saw, obviously, was a disruption immediately after the Russian invasion of Ukraine. We saw a lot of self-sanctioning, where Western-aligned companies and tankers immediately veered away from that trade and started to trade less efficient routes. So when you have that sort of “less efficient route” phenomenon happening, it’s like a synthetic reduction in supply. And so that contributed to an enormous ramp-up in rates.
At the same time, you had the European buyers panicking, and they were buying every amount of diesel, of gasoline, of distillates, of everything they could get their hands on. And a lot of them were trying to front-run the sanctions. So they were trying to get as much Russian diesel as they could before the sanctions kicked in—so, you know, kind of saying one thing and then buying the other, of course. And so this combined impact had about an 8%—that’s our estimate, and there are a lot of other research shops that have done work on this—but somewhere between a 6-8% increase in the demand side. And at the same time, you also had some of the synthetic supply reductions by the inefficient routing. So that caused, in 2022—it was actually the strongest year for product tanker rates in modern history—was 2022.
But I don’t want to just leave it there, because I don’t want you to come out with the faulty conclusion that the tanker strength—the market tightness—is only due to the geopolitics here. It’s worth remembering that the supply side was very tight coming into this thing, and it’s the tightest right now that it’s ever been. So I think a lot of folks at the very, very start of COVID had that conclusion of, “Oh, this is just a temporary COVID disruption, it’ll just boil off, it’s transitory.” Well, in tankers, it’s a little more complex than that, and there’s really no relief valve whatsoever coming on in the next several years.
So if anything happens—if the sanctions get ratcheted up a little bit more, if any sort of escalation happens in Ukraine, if anything happens in the Middle East, things could really get dicey.
Jason Rotenberg
So continuing on the geopolitical angle and just maybe broadening from just your answer there, how are you thinking about geopolitics more broadly in terms of the global trade? Is there an important dimension there that you’re tracking?
J Mintzmyer
One thing I hear a lot about, of course, is—it’s sort of the hot word in academia and, I think, in the news media as well as—they call it “deglobalization.” They also call it “nearshoring.” Some folks are calling it “friendshoring,” where you realign your trade patterns to more friendly nations.
I think the one segment where that impacts the most is probably dry bulk, because it’s so dependent on Chinese demand growth. If China no longer is the epicenter of the world’s manufacturing or the world’s manufacturing hub, that’s going to be very negative for dry bulks. So we’re watching that really closely.
For the tanker market, the Middle East has always been the hot spot. That’s always been the area to look at. It’s sort of interesting now, because the last couple of years, of course, we just finished talking about how we’re watching Russia and Ukraine. And that’s much different because for the last 40-50 years, it’s always been the Arabian Gulf or the Middle East Gulf where you want to watch.
As far as the containerized freight, sort of consumer goods, I do want to address a couple of misconceptions. I think a lot of folks overgeneralize—you know, they think, “Oh, nearshoring, we’re just going to build a bunch of factories in southern United States, in Mexico, and we’re going to build a bunch of new rail lines, and we’re going to do that.” Well, that’s totally antithetical to the whole climate change prospect. That’s very, very inefficient. So if you think about a rail line—that’s about 9-10 times more efficient than a truck going down the road. Now, ships are about 10 times more efficient yet than a rail line. So that’s 100 times more efficient to use a ship to transport goods than it is to use a freight truck.
So the idea that we’re going to build a bunch of warehouses and manufacturing centers in Mexico and use those to supply the United States, that would be an absolute travesty, an absolute disaster, both economically speaking and environmentally speaking. Not only that, it would take 10-15 years to build such a thing out. So I think it’s sort of overgeneralized in media.
I think that the word friendshoring is probably more appropriate. I think we’re going to see a diversification of supply lines across Malaysia, Vietnam, some of those other countries—India is one of them, Pakistan. We’re going to see a lot more diversification of our supply lines. That actually leads to a more robust shipping demand, if anything. I think we’re going to see, if anything, more usage of maritime shipping because it’s 100 times more efficient per mile.
Jason Rotenberg
Great. I think it would be helpful to expand a little bit on how ESG is impacting shipping more broadly, both in terms of what shipowners are doing in terms of new supply and also in terms of valuations in the sector. And this is interesting because this increase in investment, as we transition to lower-emission alternatives, is inflationary as it’s occurring.
J Mintzmyer
People say “ESG and ESG-focused investing,” and that scares people away from all sorts of energy investments, of all sorts of shipping investments. Commodities writ large do very poor on an ESG-level screener. However, we think about ESG as a sort of phenomenon that is choking out the new supply, the new capital investment in a sector. It’s actually very bullish for us. So, as a shipping investor myself and a shipping researcher, I look at the ESG mandates and environmental mandates coming down, and I see those as really helping the rates—stimulating the sector, as it were.
So I actually think shipping is one of the most interesting sectors to invest in when it comes toward 2030 and the decarbonization initiatives. Not only that, the current global fleet is not ready for—they’re sort of on the whiteboard at this point, and they’re not codified into law yet, but the 2030 carbon reductions, they’re talking about zero carbon emissions by 2050. The global fleet is nowhere near ready for that, and that’s going to require an unprecedented amount of capital investment. We’re talking trillions of dollars that will need to be spent within the next decade or so.
So I think shipping is actually—it’s under the radar. I think if you ask almost anybody, even in the investing community, about which sectors could benefit from ESG, I highly doubt any of them would say shipping at this point.
Jason Rotenberg
Interesting. So what you’re saying here is that for the shipowners, the lack of new supply is actually a pretty bullish factor, like what we’re seeing in some of the other commodities where prices are being supported because of the lack of investment.
OK, let’s leave it there. Thanks, J and James. I always enjoy reading your stuff and talking to you, and this was a great distillation of a lot of the stuff we’ve been talking about in recent years.
James Catlin
Excellent. Thank you, guys. We appreciate it as well.
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In most of our research, we focus on a particularly big dynamic impacting markets and economies. Today, we’re doing something a little different. We’re taking a close look at something that’s small on its own but touches many of the most important issues investors are tracking, including inflation, commodity markets, geopolitics, and China’s recovery. That topic? Shipping.
Shipping may be a relatively small sector by itself, but its connection to nearly every part of the global economy makes it an important part of tracking how different themes are developing and a great tool for perceiving issues that may matter a lot down the line. And when something goes wrong—as seen during COVID—shipping can transform from a minor pressure to a very material one.
To explore how shipping connects to the big macro issues we’re watching today, macro team co-head Jason Rotenberg recently sat down for a conversation with shipping researchers J Mintzmyer and James Catlin of Value Investor’s Edge. The conversation covers a wide range of topics, including what shipping tells us about the state of COVID-era supply problems, China’s economy, Europe’s ability to obtain natural gas, the potential for disruption in the oil market, how geopolitics are affecting supply chains, and the impact of ESG and the green energy transition on investment. We hope you enjoy the conversation.
Note: The views of external guests do not necessarily reflect the views of Bridgewater.
TRANSCRIPT
This transcript has been edited for readability.
“I think it’s important to take the lessons that we’ve learned from the container ship cycle, the supply chain crisis that we just had, and remember how that originated. If you go back to 2018 and 2019, you can already see that supply side start to tighten. That’s sort of where we are right now with crude tankers and a little bit as well with refined product tankers: the rates are elevated, but they’re certainly not skyrocketing yet. But that supply side is extremely tight. Every vessel is already working up to its maximum capacity. There are really no more deliveries coming online. 2024 is probably the lightest delivery year we’ve had in the 21st century. So any sort of disruption is going to send those rates sky high. If we see VLCC rates, for instance, if we see those move from—right now, they’re about $40,000 a day. We’ve seen those rates go as high as $200,000 per day. If that happens again, and that’s sustained for a period of, let’s say, 12 to 18 months, you could see an in-market impact to gasoline of $0.20 to $0.25 a gallon, maybe $0.30 a gallon. And this adds up, because that would be the wholesale price and this would certainly add up in industrial demand and in consumer gasoline prices and so forth.”—J Mintzmyer, founder of Value Investor’s Edge
Jake Davidson
I’m Jake Davidson, associate editor of the Daily Observations. In our typical BDOs, what we usually do is take a major pressure on the economy and markets and synthesize it for our readers and listeners. But today, we’re going to do something a little bit different and actually invert that approach to talk about a smaller topic that impacts a wide range of the most important macro issues that global investors are tracking. And that topic that we’re going to discuss is global shipping.
Shipping impacts a small piece of almost everything in the economy. And so it’s a great way to track how different dynamics are developing. And when something goes wrong, as we saw during the COVID pandemic, shipping can become an even bigger influence.
So I’m joined today by the co-head of our macro team, Jason Rotenberg. And Jason, maybe you can explain why shipping is so near and dear to your heart as an investor, because I think people might not always realize exactly how many different huge topics over the past couple of years and through today have involved or do involve shipping in a pretty central way.
Jason Rotenberg
Thanks, Jake. A big part of being macro investors is paying attention to what is happening in the world and just perceiving things that are potential questions that may eventually matter down the line. And I just find global shipping, because it touches so many things, a really good way to raise questions.
Global shipping isn’t a big driver usually of almost any market that we trade. It might be a 2% influence, 5% influence. If you take the container ship example, I think it’s a good one, which is 80% to 90% of global goods go through container shipping. You know, before the pandemic, it might have just been a few percent of the cost of goods—so pretty small. But when it gets constrained, it can become a much larger number. It can go from 3% to 5%, and then if it gets completely blocked, it’s a little bit like oxygen: if you don’t have it, nothing works.
And that’s true across all the different segments that we’re going to talk a little bit about today here. For natural gas, the natural gas carriers are what made Europe survive the winter in Ukraine. So understanding what is happening with supply there and the pricing there is useful. The oil tankers are a way to track how the Russian oil flows are flowing through time. And then the bulk commodities are very helpful in knowing what is happening with Chinese demand. Again, you wouldn’t rely on shipping alone to understand those markets holistically, but it’s a good way to perceive what is happening and raise questions.
Jake Davidson
So what we want to do today is go through some of those topics that Jason just mentioned that are some of the big topics we’re tracking in markets and economies: the supply crunch, European natural gas, potential disruptions in the oil markets, China’s slowdown, the economic impact of the green transition and ESG investing, and what we can learn from shipping about those topics.
And to do that, we’re joined by two shipping experts, J Mintzmyer and James Catlin from Value Investor’s Edge. And so, Jason, I want to turn the conversation over to you, J, and James, and take it from here.
Jason Rotenberg
Thanks, Jake. J and James, thanks for joining me here. I’ve been reading your work now for over five years. We’ve talked a lot about shipping over that time. I’m excited to have you here. Why don’t you guys go ahead and introduce yourselves?
J Mintzmyer
Thanks, Jason. I appreciate you having us on this morning to talk about shipping. I founded a research platform called Value Investor’s Edge back in 2015. We focus exclusively on maritime shipping. So we do equity-level research. We also look a little bit into the fixed-income side of shipping.
But I’m here today with James Catlin. He’s our lead macro analyst. James, if you want to say hello and just introduce yourself and say what you do as well.
James Catlin
I’m James Catlin. I came on board VIE in 2015 as well. I’m more responsible for the top-down analysis. I take the broader markets, figure out what they’re doing, apply that to the market in shipping. And it’s several pieces of a big puzzle that we all try and fit together to bring our macro outlooks to shipping.
And as Jason was saying, maritime trade—people often think of that as a leading indicator for economic activity, and it can be useful in that way. So, I can definitely see why this is interesting for him. And we appreciate his interest.
Chapter 1: COVID Supply Disruptions and Where Things Stand Now
Jason Rotenberg
In this conversation, we plan to hit a lot of different topics, and we’re going to go through each of the main key segments of shipping as a window into some of the big macro drivers. But I think a good place to start, given the big disruptions over the last couple of years, is where do you see us now being on the container ship disruptions, prices, and how do you see that market playing out in the coming months and years? J, let’s start with you.
J Mintzmyer
Even before COVID hit, we already had a very tight supply situation. The container ship sector had been going to a bear market for about seven or eight years, so there was a culling of the older tonnage. There was very little appetite to invest in new builds and new vessels. The only new vessels that were coming online were some of these larger 14,000- to 20,000-container vessels that were doing almost purely Asia to Europe. There was no investment in any sort of the midsize tonnage and the smaller feeder vessels—that sector was just completely forgotten about.
I guess you could say, to make an analogy, you had the tinder of this tight supply situation, and then COVID was kind of gasoline. And then these port shutdowns and the port congestion were the spark that lit that extreme, extreme dislocation. I think people look back and say, “Well, that was just because of COVID.” Well, yes, COVID was the spark that lit that, but that tightening supply had been building for years and years.
So we all lived through it. We all saw what happened with the shipping rates—that it took about two, two and a half years to get through that. And the reason it took two and a half years, and not just six months or nine months, was because of that extremely tight supply situation. It takes about two, two and a half years to build one of these new vessels. So by the time the liner companies and the operators realized, “Wow, the demand structure has changed, rates are strong, we need to order new vessels”—well, by the time they got to that conclusion, the earliest they could get a ship was the middle of 2023. So they did everything they could to retrofit some of the older vessels to get everything back into service. But it really just took two and a half years for that situation to unwind.
So now, as we’re recording this in August of 2023, we’re past the worst of things, and the supply picture has totally changed. All those owners had panicked and ordered more vessels. The liner companies had done the same. And now we have a very large order book. In fact, it’s the largest order book we’ve seen since 2007.
So on one hand, at this point, we don’t need to worry about any sort of supply chain shortage on the shipping side of the business. But on the other hand, we also have a lot of environmental regulations coming in. So it’s a little bit uncertain how that’s going to pan out. From the shipping side, we’re not necessarily bullish, because there’s a huge supply side. But from the more macro perspective, I don’t think consumers or businesses really need to worry about containerized goods. I think their focus probably needs to be a little bit more on the concerns in bulk commodities and in tanker stuff, and we can get into that later.
Jason Rotenberg
Great. So I think it’s just helpful to talk through some terms. When they’re talking about “current rates,” those are the rates that shipowners are receiving, and obviously when those rates spike, that’s an inflationary influence. Now the “order book” is how many ships are on order by owners, and a “tight market” means that there just isn’t a lot of supply coming, which in the short term will mean that rates are more likely to be higher if there is an increase in demand because there’s not enough supply to meet that demand. And when J refers to a “large order book,” that means the opposite. That means that there is the ability of shipowners to meet demand and is less inflationary.
So if you tie it back to the macro, what we’re seeing now is goods inflation coming down as a lot of these COVID disruptions have come off. It takes a while for some of the input prices to flow through all the way to consumers. We’ve seen goods disinflation in the US. We’re just beginning to see it in other countries. There’s almost certainly more of that ahead.
But as you’re saying, as you look beyond the next 6-12 months, probably the supply situation is much more of a normal market with a lot of supply coming online. And then some of the environmental regulations reducing supply, and you’re just having to net those two things. But the big COVID dynamics are largely behind us.
And when I think about goods prices, probably other drivers beyond the next six months, it’s going to be globalization versus deglobalization. There are going to be other drivers that are going to be impacting that.
Chapter 2: What Shipping Tells Us About China’s Recovery
Jason Rotenberg
I want to turn now to another shipping sector, which is bulk shipping, which mostly tracks what’s happening with iron ore, coal, and some of the minor other commodities. And the main reason why this is an interesting sector to track from a macro perspective is because it’s the one that’s most closely tied to Chinese demand and a way to see how the Chinese reopening has been playing out. And so it would be helpful, J, to get your thoughts on how you see things playing out there now.
J Mintzmyer
The dry bulk sector, it certainly benefited from some of the COVID disruptions to a smaller degree than we saw with the container side of things. But the main demand driver for dry bulk is always—at least for the last 15 years—has really been China.
And China slowed everything down, of course, with their response to COVID, their zero-COVID policies and lockdowns and those sorts of things. And so when those lockdowns ended last fall, last winter, there was a glimmer of hope for dry bulk. We were all very focused on how much of a reopening we’d see, how much industrial strength would go up, what the manufacturing levels would be, and all those sorts of things. But so far to date, we have not seen a strong demand indicator out of China.
Now in dry bulk, we’re primarily watching two markets: we’re watching iron ore and coal. Those are the major two drivers. You can get a little bit more into the weeds and talk about grains and agro bulks and things like that. But primarily, it’s iron ore and it’s coal, and it’s primarily China that’s driving everything.
And so what we’re seeing right now in the market is a very lackluster level of demand from China. So even though the supply is—I wouldn’t say it’s tight, but it’s tighter than historically, and there are not a lot of future oncoming order books. The forward supply is very tight, very tight, one of the smallest order books we’ve ever seen. But despite that small hurdle, China’s reopening is still not even able to clear that. And that’s what the rates are telling us, and that’s sort of where we’re at right now.
Chapter 3: Europe’s LNG Supply
Jason Rotenberg
So why don’t we transition to LNG. And then for us, I think the most interesting dimension there is obviously what’s happening in Europe, the huge inflationary pulse that we had last year with their demand for natural gas, and whether you think that the ability for the world to produce the natural gas and then transport it to Europe and other places is there. So what are you seeing with rates, what are you seeing more broadly in that market, would be useful to know.
James Catlin
So the Russian invasion of Ukraine altered the LNG markets significantly at that point. We had to adjust for Europe banning piped-in natural gas from Russia and basically relying on an increased LNG supply from other nations. And meanwhile, Russia took their natural gas and began shipping it elsewhere. But the big story was how Europe was going to compensate for the shortfall in natural gas.
And so we saw a significant amount of volumes increase over that period. But that was at the expense of Asia, who saw their volumes fall a little bit going into that year as Europe siphoned some off with their increased willingness to pay. Now that things have normalized, we’re seeing the markets return to previous levels, with Europe taking up a slightly greater portion of the LNG cargoes than it had previously done to compensate for that. But we’re returning more toward a market balance at this point.
So looking forward, we have an order book that is fairly high, which I think is around 50% at this point. It sounds huge, but past cargo mile demand growth for LNG has been able to support order books almost as high as that. And we’re again looking out toward 2024, 2025, and beyond, when we see a large influx of liquid natural gas supply coming online here in the United States, which, of course, the United States is very far away from Asia, which is our demand epicenter.
And so we’re going to be seeing a significant gain in cargo mile demand over that period once that supply comes online. So it presents an interesting dynamic going forward, where we have a high degree of supply getting ready to hit the water, but we’re also anticipating almost maximum uptake of that new LNG supply that’s going to be coming online, which should be able to offset a great deal of that. Perhaps J can add some color.
J Mintzmyer
I think you’ve hit most of the high points there, James. Just really boiling it down on LNG. The Russian invasion of Ukraine proved to all the major energy customers around the world that it’s better to have ample shipping supply and it’s better to have ample feed gas stocks than to not. So I think everyone is erring on the side of oversupply.
And I think from a shipowner perspective, obviously we don’t want to see oversupply because that’s going to drive rates down. But I think from a customer perspective, they’re happy to sign on these long 8-, 10-, 12-year contracts for these vessels—even though they might be loss-making, even though they might be far below market in seven or eight years—because energy security is now the imperative. So I think that’s really what’s driving this sort of huge order book, plus very strong rates. Because normally if you saw an order book like this, you would not see customers taking on 6-, 7-, 8-, even 10-, 12-year contracts.
Jason Rotenberg
So the basic point here is that, yes, there is a big demand for natural gas story, and the main question here is whether there will be enough supply to meet it. And so what we’re seeing is increased supply of natural gas coming online in coming years and also huge order books of ships that are also being produced to meet that demand. So it’s much less likely that you’re going to have a supply problem. When you talk about contracts of 12 years, even with high rates, the pipelines, effectively, to connect the natural gas from where it’s being produced to where it’s being demanded are being built, and this is less likely to create an inflationary problem.
I think it would be helpful to touch very briefly on how you’re seeing this winter playing out—because these ships also take a while to be produced—and whether, particularly if you have a colder winter and more demand from Asia, is there a potential for shipping to be a constraint, or do you see very high rates again this winter?
J Mintzmyer
What we’re seeing on the LNG side of things is, I would say, a very adequately supplied market at this point in time. So unless we see some sort of extreme weather event, which of course we’re not expecting and neither are any of the weather forecasters, or we see some extreme geopolitical black swan event—and I mean like a serious escalation of things in Ukraine—we don’t foresee a shortage this winter. I think Europe in particular really reacted last summer and last fall, as they should have, to build up those gas stockpiles, and they have improving infrastructure now.
So we don’t foresee a shortage, and we’re also going to have a lot of tonnage, as we just talked about, coming online over the next few years. So I never want to say we’re 100% clear because, of course, shipping—there are always black swans and those sorts of things happening. But I would say this winter should be fine.
Jason Rotenberg
Good. So what I’m hearing on the natural gas side is that, at least from a shipping supply perspective, not a lot of bottlenecks. Of course, natural gas prices could rise in the winter for other reasons.
Chapter 4: The Potential for Oil Market Disruptions
Jason Rotenberg
I think this is a good segue to shift to oil tankers, and I think it’s interesting from a few different angles. One, it’s been a good way to track what we’re seeing in terms of the disruptions in the oil market related to the Ukraine invasion. And then, more broadly, I know this is a sector you’re watching closely because you see some potential analogs to what was happening with container ships prior to the COVID spike—meaning this is one of the sectors where there is very little new supply, not just now but for years. And if there’s any disruption or increase in demand, those rates could meaningfully spike and have an inflationary impact.
James Catlin
So crude tankers is one of the more interesting segments right now, along with refined product tankers. Those are two different segments. They carry different products; they’re different segments that we treat separately. They both have very, very thin order books right now—very low order books. It’s not enough to support retirements in the fleet, as well as expected trade growth in the near future. This is indeed a recipe, what we believe, for higher rates going forward over the next few years.
Specifically, we’re focused on the larger class of crude carriers, known as the very large crude carriers—the VLCCs. They carry approximately 2 million barrels of oil. They have the thinnest order book I think I’ve ever seen in any shipping segment or class ever, as long as I’ve been doing this. And since they compose the most capacity on the water, the thin order book is going to have sort of an outsize effect on the overall crude tanker market as a result of that. So this is a supply-side-driven story for the crude tankers. But yes, we’re very excited about that over the next several years.
We’ve seen some new build orders come through for crude tankers, but they’re not going to be hitting the water until 2026, 2027—possibly even later than that. So this is potentially a multiyear story that could be playing out.
J Mintzmyer
I think it’s important to take the lessons that we’ve learned from the container ship cycle—the supply chain crisis that we just had and remember how that originated. If you go back to 2018 and 2019, you can already see that supply side started to tighten. Now, demand was sort of moderate, and so rates were not skyrocketing. So if the rates aren’t skyrocketing, nobody’s paying attention. Maybe some investors like ourselves are, but the customers and end-market consumers, as long as prices aren’t skyrocketing, nobody’s paying attention.
That’s sort of where we are right now with crude tankers and a little bit as well with refined product tankers: the rates are elevated, but they’re certainly not skyrocketing yet. But that supply side is extremely tight, and there’s no relief valve. Every vessel is already working up to its maximum capacity. There are really no more deliveries coming online throughout the rest of 2023. 2024 is probably the lightest delivery year we’ve had in the 21st century. So there’s really no relief valve. So if you have any sort of disruption ongoing, say, next year or into 2025, any sort of disruption is going to send those rates sky high. This probably won’t have as extreme of an impact on consumer pocketbooks like the supply chain crisis did. But if we see VLCC rates, for instance, if we see those move from—right now, they’re about $40,000 a day. There’s precedent in the past. This has already happened several times in the last decade—we’ve seen those rates go as high as $200,000 per day. If that happens again, and that’s sustained for a period of, let’s say, 12 to 18 months, you could see an in-market impact to gasoline of $0.20 to $0.25 a gallon, maybe $0.30 a gallon. This adds up because that would be the wholesale price. And this would certainly add up—in industrial demand and in consumer gasoline prices and so forth.
Jason Rotenberg
Thanks, J. So, in other words, what you’re saying here is that this is one place where you could see some macro inflationary impacts if there are disruptions, though, probably something that won’t approach the magnitude of what we saw with container ships.
J, it would also be helpful to have you describe what you’re seeing in the oil tanker market as a way to track geopolitical disruptions. The sanctions on Russian oil were a good example last year, and I know that this is an area that you’ve spent some time thinking about and tracking in real time.
J Mintzmyer
Yeah, certainly, Jason. And normally I would let James take this question because it’s in his wheelhouse. But I’m also just wrapping up a PhD program at the Harvard Kennedy School, where part of my dissertation actually focused on the impact of sanctions on trade flows. So as part of my research, I actually analyzed the AIS—that’s the GPS for ships. And so I analyzed over 3,000 vessels, their GPS positioning, in the period leading up to the Russian invasion of Ukraine, the post-invasion period, and then the post-sanctions period. So I’ll take this one, even though normally I’d throw that over to James.
So what we certainly saw, obviously, was a disruption immediately after the Russian invasion of Ukraine. We saw a lot of self-sanctioning, where Western-aligned companies and tankers immediately veered away from that trade and started to trade less efficient routes. So when you have that sort of “less efficient route” phenomenon happening, it’s like a synthetic reduction in supply. And so that contributed to an enormous ramp-up in rates.
At the same time, you had the European buyers panicking, and they were buying every amount of diesel, of gasoline, of distillates, of everything they could get their hands on. And a lot of them were trying to front-run the sanctions. So they were trying to get as much Russian diesel as they could before the sanctions kicked in—so, you know, kind of saying one thing and then buying the other, of course. And so this combined impact had about an 8%—that’s our estimate, and there are a lot of other research shops that have done work on this—but somewhere between a 6-8% increase in the demand side. And at the same time, you also had some of the synthetic supply reductions by the inefficient routing. So that caused, in 2022—it was actually the strongest year for product tanker rates in modern history—was 2022.
But I don’t want to just leave it there, because I don’t want you to come out with the faulty conclusion that the tanker strength—the market tightness—is only due to the geopolitics here. It’s worth remembering that the supply side was very tight coming into this thing, and it’s the tightest right now that it’s ever been. So I think a lot of folks at the very, very start of COVID had that conclusion of, “Oh, this is just a temporary COVID disruption, it’ll just boil off, it’s transitory.” Well, in tankers, it’s a little more complex than that, and there’s really no relief valve whatsoever coming on in the next several years.
So if anything happens—if the sanctions get ratcheted up a little bit more, if any sort of escalation happens in Ukraine, if anything happens in the Middle East, things could really get dicey.
Chapter 5: Shipping, Geopolitics, and Deglobalization
Jason Rotenberg
So continuing on the geopolitical angle and just maybe broadening from just your answer there, how are you thinking about geopolitics more broadly in terms of the global trade? Is there an important dimension there that you’re tracking?
J Mintzmyer
One thing I hear a lot about, of course, is—it’s sort of the hot word in academia and, I think, in the news media as well as—they call it “deglobalization.” They also call it “nearshoring.” Some folks are calling it “friendshoring,” where you realign your trade patterns to more friendly nations.
I think the one segment where that impacts the most is probably dry bulk, because it’s so dependent on Chinese demand growth. If China no longer is the epicenter of the world’s manufacturing or the world’s manufacturing hub, that’s going to be very negative for dry bulks. So we’re watching that really closely.
For the tanker market, the Middle East has always been the hot spot. That’s always been the area to look at. It’s sort of interesting now, because the last couple of years, of course, we just finished talking about how we’re watching Russia and Ukraine. And that’s much different because for the last 40-50 years, it’s always been the Arabian Gulf or the Middle East Gulf where you want to watch.
As far as the containerized freight, sort of consumer goods, I do want to address a couple of misconceptions. I think a lot of folks overgeneralize—you know, they think, “Oh, nearshoring, we’re just going to build a bunch of factories in southern United States, in Mexico, and we’re going to build a bunch of new rail lines, and we’re going to do that.” Well, that’s totally antithetical to the whole climate change prospect. That’s very, very inefficient. So if you think about a rail line—that’s about 9-10 times more efficient than a truck going down the road. Now, ships are about 10 times more efficient yet than a rail line. So that’s 100 times more efficient to use a ship to transport goods than it is to use a freight truck.
So the idea that we’re going to build a bunch of warehouses and manufacturing centers in Mexico and use those to supply the United States, that would be an absolute travesty, an absolute disaster, both economically speaking and environmentally speaking. Not only that, it would take 10-15 years to build such a thing out. So I think it’s sort of overgeneralized in media.
I think that the word friendshoring is probably more appropriate. I think we’re going to see a diversification of supply lines across Malaysia, Vietnam, some of those other countries—India is one of them, Pakistan. We’re going to see a lot more diversification of our supply lines. That actually leads to a more robust shipping demand, if anything. I think we’re going to see, if anything, more usage of maritime shipping because it’s 100 times more efficient per mile.
Chapter 6: Shipping and ESG
Jason Rotenberg
Great. I think it would be helpful to expand a little bit on how ESG is impacting shipping more broadly, both in terms of what shipowners are doing in terms of new supply and also in terms of valuations in the sector. And this is interesting because this increase in investment, as we transition to lower-emission alternatives, is inflationary as it’s occurring.
J Mintzmyer
People say “ESG and ESG-focused investing,” and that scares people away from all sorts of energy investments, of all sorts of shipping investments. Commodities writ large do very poor on an ESG-level screener. However, we think about ESG as a sort of phenomenon that is choking out the new supply, the new capital investment in a sector. It’s actually very bullish for us. So, as a shipping investor myself and a shipping researcher, I look at the ESG mandates and environmental mandates coming down, and I see those as really helping the rates—stimulating the sector, as it were.
So I actually think shipping is one of the most interesting sectors to invest in when it comes toward 2030 and the decarbonization initiatives. Not only that, the current global fleet is not ready for—they’re sort of on the whiteboard at this point, and they’re not codified into law yet, but the 2030 carbon reductions, they’re talking about zero carbon emissions by 2050. The global fleet is nowhere near ready for that, and that’s going to require an unprecedented amount of capital investment. We’re talking trillions of dollars that will need to be spent within the next decade or so.
So I think shipping is actually—it’s under the radar. I think if you ask almost anybody, even in the investing community, about which sectors could benefit from ESG, I highly doubt any of them would say shipping at this point.
Jason Rotenberg
Interesting. So what you’re saying here is that for the shipowners, the lack of new supply is actually a pretty bullish factor, like what we’re seeing in some of the other commodities where prices are being supported because of the lack of investment.
OK, let’s leave it there. Thanks, J and James. I always enjoy reading your stuff and talking to you, and this was a great distillation of a lot of the stuff we’ve been talking about in recent years.
James Catlin
Excellent. Thank you, guys. We appreciate it as well.
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