Chapter 326: Bao Yugang's Consultation

Soon, the dishes were served, and at Bao Yugang's invitation, Xia Yu and Li Xi took their seats at the table. During the meal, Bao Yugang's family was very warm and hospitable. Xia Yu enjoyed a sumptuous dinner with a smile on his face. There was no discussion of business during the meal, just some light-hearted conversation. Xia Yu knew that Bao Yugang intended to discuss business after dinner, and he was content with that.

After everyone had eaten their fill, the housemaid cleared the dishes, and the group moved to the living room to drink tea. Bao Peirong found an excuse to take Li Xi to her room for a chat, leaving only Xia Yu, Bao Yugang, and Wu Guangzheng in the living room.

After Wu Guangzheng refilled Xia Yu's teacup, Bao Yugang took a sip of his tea, put down his cup, and let out a long breath. Xia Yu realized it was time to discuss serious matters, so he leaned slightly forward, adopting a listening posture.

Bao Yugang smiled and said, "Mr. Xia, the reason I invited you here is actually to seek your advice. I hope you won't hold back in your guidance."

"Mr. Bao, you're too kind. Please, go ahead and ask. I'll do my best to answer fully and frankly!" Xia Yu responded with a big smile.

"Haha, Mr. Xia, you're very generous. Then I'll shamelessly ask my questions."

Bao Yugang laughed heartily, then his smile faded slightly as he asked, "Mr. Xia, I read every issue of your *Jiuding Daily*. The quality of the articles and news is very high; I can't find a better newspaper in Hong Kong."

"Thank you!" Xia Yu smiled and thanked him.

"Today's newspaper had a very insightful and detailed analysis of Hong Kong's transportation market. I gained a lot from it, but I have some doubts. As you know, the world shipping market hasn't been doing well these past few years. How did you come to the conclusion that shipping will rebound?"

Bao Yugang spoke slowly and then looked intently at Xia Yu.

In fact, this was a polite way of expressing his thoughts. The truth was, after reading the article, Bao Yugang had been thinking about it all day. The article's perspective conflicted with his own.

He believed that the global shipping market would remain depressed for the next few years, possibly even for the next decade. The global shipping market seemed poised to enter a prolonged period of stagnation, but the opinion expressed in *Jiuding Daily* was the complete opposite.

Although Bao Yugang trusted his own judgment, based on the consistent quality of *Jiuding Daily*, he knew the article couldn't be baseless. So, he wanted to understand the deeper reasoning behind it, to see if he had overlooked anything.

It wasn't just Bao Yugang who was eager to hear Xia Yu's perspective; Wu Guangzheng also listened intently, as this issue was of great importance.

"Mr. Bao, I'll give my humble opinion, but if my thoughts aren't well-received, I hope you'll bear with me."

Xia Yu said humbly.

"No need to be modest, Mr. Xia. Please, go ahead!" Bao Yugang smiled and gestured for Xia Yu to continue, then adopted a listening posture.

"In fact, the article is both correct and incorrect."

Xia Yu paused to think for a moment before speaking slowly. Bao Yugang and Wu Guangzheng both furrowed their brows.

Before they could ask any questions, Xia Yu continued, "Mr. Bao, you should be well aware that the shipping industry is cyclical. Looking at the past few centuries, the cycles of prosperity and crisis in the shipping industry have followed a nearly identical trajectory, repeating roughly every ten years."

Bao Yugang nodded in agreement, as he had experienced one such cycle himself and remembered it vividly.

"After World War II and up until the mid-1960s, the global shipping market experienced brief cycles of prosperity and decline, with the market hovering at low levels, undergoing volatile consolidation. It wasn't until 1967, when the Arab-Israeli war broke out, that Israel occupied the Sinai Peninsula, turning the Suez Canal into a frontline. The canal was closed for eight years, forcing ships that used to pass through the Suez Canal to take the long route around the Cape of Good Hope, which greatly stimulated the shipping industry."

"Moreover, the global industrial trade was booming during the late 1960s. The volume of global maritime trade grew rapidly during this period, jumping from 1.81 billion tons in 1966 to 3.23 billion tons in 1973, an increase of 78%. The demand for shipping during these seven years was greater than the total demand in the two decades following World War II. Despite the rapid expansion in shipbuilding, capacity was still insufficient to meet demand, and it became nearly impossible to find available ships. The shipping industry quickly became the most promising and profitable industry at the time, with banks flocking to invest in it. Consequently, the late 1960s became known as the golden age of global shipping, but hidden risks were also accumulating. From 1970 to 1971, the price of a second-hand VLCC (Very Large Crude Carrier) was around $26 million, but by 1972, it had risen to $61-73.5 million, nearly tripling in price."

"However, in the summer of 1973, the Yom Kippur War broke out, and the Arab members of OPEC decided to impose an oil embargo on Israel and its allies, while significantly raising oil prices, causing oil prices to more than double. This ultimately triggered a global economic crisis."

"With reduced demand for oil imports, the oil transportation sector, a crucial part of shipping, was hit hard. Freight rates collapsed almost instantly, with VLCC rates plummeting by nearly 75% to around WS80 in December. Additionally, the rising oil prices exacerbated the global economic downturn, affecting every corner of the shipping industry, including dry bulk cargo, container shipping, and both new and second-hand ship markets."

"Subsequently, the shipping market entered a prolonged period of decline and stagnation. Although there were brief recoveries, the overall trend of decline never fully reversed. Freight rates remained below transportation costs, with over 10 million DWT of tankers idling, and the second-hand ship market saw both volume and prices plummet. For example, a 200,000 DWT tanker built in 1970 was priced at around $52 million in 1973 but dropped to $5 million by 1977, a decline of 90% in less than four years."

"These years were extremely tough, and it was only thanks to his large-scale operations and cost-cutting measures that Mr. Bao was able to survive and thrive in such a challenging environment."

This cold spell gave Bao Yugang a clear understanding of the global shipping market, making him pessimistic about the future of shipping. He was already considering shifting his focus to other ventures.

But under these circumstances, *Jiuding Daily* boldly claimed that the shipping market's winter was over and that spring was on its way. How could Bao Yugang not be shaken by this?

"Mr. Bao, there are too many idle ships on the market right now. Whether newly built or second-hand, they're all waiting for buyers, making it very difficult for freight rates to rise."

"But Mr. Bao, you've traveled extensively around the world, especially through the Middle East. What are your impressions of that region?"

Xia Yu suddenly asked.

Bao Yugang's eyes lit up, and he quickly grasped Xia Yu's underlying meaning, replying, "Are you implying that the Middle East is unstable?"

"Mr. Bao, you should be more aware of this than I am. Right now, we're in the midst of the Cold War, with the Middle East being a critical point of contention and a bottomless quagmire. The region is full of restless players—Israel is a constant agitator; Iraq has its ambitions; and other countries like Iran and the Arab nations are far from being peaceful, each with their own agendas. And this region just happens to be the world's oil heartland, with intertwined interests. A single misstep could easily lead to conflict."

"Since World War II, how many wars have been fought in the Middle East? If another war breaks out, the consequences will be dire!"

Xia Yu spoke slowly.

"If that happens, wouldn't the shipping market become even more bleak? How could it possibly rebound?" Wu Guangzheng asked in confusion.

Xia Yu didn't respond but instead looked at Bao Yugang. Bao Yugang furrowed his brows in thought and slowly said, "No, it would rebound. If war breaks out in the Middle East, oil prices would rise, making it harder for oil tankers to do business. But the world's factories can't stop operating. If they can't afford oil, they'll switch to more affordable coal. In that case, the coal shipping business would flourish."

"But shipping coal is more difficult than shipping oil, and ports would definitely become congested. Coupled with dry bulk cargo shipping, it's very likely that the shipping market would rebound!"

"However, this boom wouldn't last long—at most, it would be a few years of prosperity."

Bao Yugang shook his head and said with certainty. He left out one crucial point: this scenario would only happen if a war broke out. If the Middle East remained stable, even a short-term boom wouldn't be possible.

"Exactly, that's why I said the article was both correct and incorrect. There will be a rebound, but it will be in parts of the market outside of oil shipping, and it won't last very long."

"But these details didn't need to be published. I'm sure you understand why, Mr

. Bao."

Xia Yu said calmly.

Bao Yugang nodded in understanding.

Xia Yu intended to use public opinion to influence the stock price of Jardine's air freight station company, so he could only share the good news about shipping and omit the bad news.

"Sigh!" 

Wu Guangzheng sighed after he figured it out, and Bao Yugang glanced at him without reprimanding him. He knew why his son-in-law sighed.

"Mr. Bao, may I ask a presumptuous question? Are you considering exiting the shipping industry?"

Xia Yu hesitated for a moment before asking.

After a long silence, Bao Yugang slowly nodded and said, "Yes, I'm considering it."