The prospect of a depreciating dollar could act as significant benefit to the shipping industry. In a recent report, shipbroker Intermodal said that “as the United States gears up for the upcoming election in November 2024, economic strategies, particularly those involving currency valuation, are increasingly prominent. Former President Donald Trump, a likely contender, has proposed a potentially transformative economic policy to depreciate the U.S. dollar. Supported by his chief trade adviser, Robert Lighthizer, this strategy aims to recalibrate the balance of trade, especially with economic giants like China. Lighthizer’s approach advocates for a deliberate weakening of the dollar to enhance the competitiveness of U.S. exports on the global market. This concept reflects strategies historically employed by U.S. Presidents Nixon in 1971 and Reagan in 1987, who manipulated currency values to correct trade imbalances”.
According to Intermodal’s Research Analyst, Ms. Chara Georgousi, “the implications of a depreciated dollar would resonate well beyond U.S. borders, potentially reshaping the global economic and trade landscapes. A weaker dollar would make U.S. products less expensive and more attractive internationally, likely boosting export volumes. However, this advantage could be offset by higher import costs for American consumers and businesses that rely on foreign components, potentially fueling domestic inflation. Furthermore, the status of the dollar as a global reserve currency could be jeopardized, impacting worldwide financial stability. Such a substantial policy shift would necessitate meticulous management to mitigate risks such as excessive inflation or disruptions in financial markets. The strategy is designed not only to bolster U.S. manufacturing but also to shift the broader economic emphasis from finance to more production-oriented industries, balancing potential benefits against the risks of destabilizing both domestic and international economic systems”.
Meanwhile, “in the shipping industry, a depreciating dollar offers clear benefits, primarily through reduced operational costs. Fuel—a major expense for shipping companies—generally becomes cheaper when the dollar weakens, easing financial pressures for firms operating with stronger currencies. This cost reduction extends to debt servicing, as firms with U.S. dollar-denominated loans benefit from stronger revenue currencies. Additionally, a weaker dollar enhances the competitiveness of U.S. exports, potentially increasing the demand for shipping services. Lower dollar values might also make U.S.-denominated assets, like ships, more affordable to international buyers or investors, encouraging market activity and fleet expansions at lower costs. On the flip side, there are considerable disadvantages, particularly affecting revenue and asset valuation. Shipping companies charging in U.S. dollars might see reduced earnings when converted to stronger currencies, impacting profitability. Currency fluctuations could also alter the book value of assets priced in dollars, creating potential instabilities on balance sheets. Moreover, heightened import costs could diminish import volumes, negatively affecting shipping demand for these routes”.
Ms. Georgousi added that “overall, while a depreciating U.S. dollar offers clear benefits to the shipping industry, such as reduced operational costs and enhanced competitiveness of U.S. exports, these advantages must be weighed against current broader geopolitical uncertainties. Escalating trade wars or tariff impositions could reduce overall trade volumes, thus diminishing the anticipated boost in shipping demand. Additionally, unpredictable fluctuations in oil prices further complicate the economic landscape. The increased cost of importing goods into the U.S. could also lead to inflationary pressures. These factors suggest that negative impacts might slightly overshadow the positives. Given this complex backdrop, the overall effect on the shipping industry is likely to involve moderated growth and heightened challenges. Shipping companies must therefore prioritize strategic management and adaptability to effectively navigate this uncertain environment, ensuring they can capitalize on opportunities while mitigating risks”.
“Yet, the most probable scenario for the U.S. dollar in the near term is one of continued strength, underpinned by robust U.S. economic performance, relatively high interest rates, and structural economic changes. The Federal Reserve’s current stance suggests maintaining higher interest rates for longer to curb inflation, which supports a strong dollar. While global economic improvements could moderate the dollar’s performance, rising oil prices and reduced sensitivity to energy price fluctuations further bolster its strength. Consequently, political strategies to weaken the dollar, such as those proposed by Trump, would likely face significant challenges and could lead to mixed outcomes depending on implementation and global economic responses”, Intermodal’s analyst concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
