At The Prow

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Shell ruling should send shudders throughout shipping

What a hammering the oil majors took in May, reminiscent of Big Tobacco’s choking comeuppance in an American court 15 years ago.

In a single day, investors in the two biggest US oil companies punished Exxon Mobil and Chevron for dragging their feet on taking action to reduce global warming while more significantly in The Netherlands a historic court ruling could reshape how Shell carries outs its business.

Exxon Mobil lost at least two board seats to activist hedge fund, Engine No. 1 on May 26 while just over two-thirds of Chevron investors supported a resolution to further reduce its greenhouse gas emissions. Still, in the grand scheme of things Chevron and Exxon’s CEOs will be relieved they’re not in the shoes of their Shell counterpart. A landmark judgment issued by the district court in The Hague said that Shell and its suppliers must cut CO2 emissions by 45% by 2030 from 2019 levels, marking the first time in history a judge has held a corporation liable for causing dangerous climate change in a case originally brought about by NGO Friends of the Earth.

All three companies will now be under enormous pressure from both shareholders and the wider public to cut emissions, and cut them fast. What’s more, emboldened by this court victory, NGOs could well target other polluting industries, potentially opening the door for class action suits around the world to speed up decarbonisation of the transport sector. ●

“Emboldened by this court victory, NGOs could target shipping next ”

America’s back

The economic upturn has caught many by surprise

The US economic picture is somewhat confusing at the moment. Naturally, due to the impact of Covid the US economy slumped in 2020. Yet despite that fall the rebound has been far swifter than just about any economist, or the new Biden administration, expected or forecast. Jobs are much more of an indicator in the US than in, say, China (where employment roll padding is still common in times of downturn) or Europe (with much wider furlough schemes). Unemployment is still historically high in the US - 9.3m people remain unemployed. Although this is a significant decline of the highs seen in April last year, it is still well above the pre-pandemic measure of 5.7m in February 2020. Obviously catering, hospitality and retail have been the hardest hit sectors and are all notoriously quick to fire and to rehire in the US. In April, the number of jobs in restaurants, cafes and bars jumped by 292,000, for example.

The rebound does seem in part to be due to the effective vaccine rollout in the US allowing retail and catering to reopen and get things moving again and release household savings and relatively generous fiscal stimulus. Of course, though this is a bounce, after a hard landing and it may not presage a real economic resurgence in the second half of the year. That will be what economists are most keenly watching for.

As far as exports go it is a somewhat mixed and confusing picture too. The continuing US-China trade war may be less aggressive than it was under the Trump administration but it certainly hasn’t gone away. However, the US Department of Agriculture’s (USDA) quarterly agricultural trade forecast projects fiscal year 2021 US farm exports at $164bn – the highest total on record and 21% up on 2020’s total. Exports of food products are still, despite some rancour, led by Chinese demand for soybeans and corn. Other top markets, in order, are Canada, Mexico, Japan, the European Union, and South Korea, with demand remaining strong across the board. On the meat side, the USDA expects beef and pork export values and volumes to hit at an all-time high, as is broiler meat volume.

It also does seem to be the case that various trade disputes are playing off against each other. In some cases orders that would have gone to Australia for some consumer goods, food products and minerals/ores are shifting to the US as Washington-Beijing tensions calm while Canberra-Beijing tensions continue to escalate. Similarly so perhaps as the EU’s investment and trade deal with China falls apart. Still, the Biden administration appears to firmly believe that “significant imbalances” exist in the China-US trade relationship and the new White House is committed to levelling it, according to US trade representatives. Disagreements look set to continue into the second half of 2021 and perhaps beyond. ●

US major export categories, 2020

Category $bn exports Capital goods 547 Industrial goods 531 Consumer goods 206 Automotive 162 Foods, feeds & beverage 131 Total exports 2.5trn

Source: USDA

“2021 US farm exports are on course to hit an alltime high this year ”

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All for one and one for all

The bloc is bullish as vaccines speed up

Nowhere is the linkage between getting mass vaccination roll out going and economic recovery more pronounced than in the European Union (EU). Given the rather sluggish and overly bureaucratic start to the vaccine roll-out in the bloc its leaders appear fairly bullish on their expectations of economic rebound – they are issuing estimates that the bloc’s combined economy will expand by 4.2% of GDP in 2021, and by 4.4% in 2022. That is bullish after a 6.1% contraction in the EU, and a 6.6% shrinking in the Eurozone, in 2020. Everything back to normal by last quarter of 2022 is the aim.

There is, of course, some more stimulus to come in the EU - the €800bn EU recovery fund planned to start pumping funds into European economies in the second half of this year. Some economists also worry that much fiscal responsibility may be jettisoned to get economies back on track. There is talk of removing the mandatory3% cap on any deficit, and 60% of GDP debt ratio. It is talked of as ‘reform’ but sounds like it might be abolished. Public debt is also a concern for the bloc - public debt is set to peak this year in the EU at 94% of GDP before decreasing slightly to 93% in 2022. France, Italy, Spain, Greece, Belgium and Cyprus are expected to have debt of over 100% next year.

And not all the bloc will recover equally even if things go to the commission’s plan. Spain, the hardest-hit EU economy last year with a contraction of 10%, may grow 5.9% this year. However, Italy is set to expand by 4.2%, Germany by 3.4 % and France by 5.7%. Again, these projections seem rather optimistic to many economists.

It’s a mixed message on exports within the EU and without. Some claim that British exports to the European Union are recovering. Official figures for March show exports to the EU rose by 8.6% to £12.7bn – close to the £13.6bn recorded in December before Britain left the bloc and when there was a surge of trade as companies stocked up ahead of the Brexit deadline. This seeming return to normal is hotly contested by many though on both sides of the English Channel. But with the exception of the now non-EU UK, exports to destinations outside the bloc are more problematic.

And finally, even with the issues of Brexit still not all resolved as well as the pandemic, trade wars remain. The US-EU trade talks seem to be at a truce though the EU-China trade and investment deal is now dead in the water over a lack of perceived reciprocity from Beijing on genuine market access as well as the sticking points of human rights, Xinjiang and Hong Kong. ●

Main EU trading partners, 2020

Destination % of total exports US 18

UK 14

China 10

Switzerland 7

Russia 4

Turkey 4

Japan 3

Rest of world 39

Total

Source: Eurostat 100