During 2014, while weakness was evident in some of the
minor bulk trades, the three majors — iron ore, coal and
grain/soya — together grew rapidly, supporting overall robust
dry bulk trade enlargement. That pattern changed noticeably in
2015. Minor bulks picked up a little, but iron ore movements
ceased expanding rapidly and grain trade growth faltered. Coal
trade actually shrank last year, with what appears to have been a
sizeable fall of about 4–5%, after many years of uninterrupted
expansion at varying rates.
Changes in the pace of China’s imports have been a common
factor heavily influencing global movements in most commodity
trades. The massive increase of 120mt in iron ore imports into
China in 2014 comprised around 55% of that year’s entire
increase in all world dry bulk trade. In 2015 an estimated 70mt
fall in China’s coal imports apparently offset all or most growth
in other dry bulk trade movements.
Trade volume changes are a useful indicator of demand for
ships’ transportation capacity, but are not necessarily an accurate
one. Another factor, as is well known, greatly determines the
deadweight capacity required: transport distance. For example,
when voyage distances carrying cargo lengthen and therefore
take longer in time to complete (assuming unchanged speed),
demand for shipping capacity rises even when there is no change
in the commodity volume being transported.
The tonne-mile unit reflects both influences, but statistics
compiled on this basis involve complex calculations and
assumptions and are not (usually) readily available or up-to-date.
So cargo volumes shipped are still often the most useful guide.
SHIP DEMAND/SUPPLY BALANCE
Comparing annual deadweight capacity growth in the bulk
carrier fleet with annual growth in the volume of dry bulk cargo
moved provides a partial explanation, and sometimes most of
the explanation, for changes in freight market rates. When these
indicators are compared for 2015, a deterioration in the market
supply/demand balance is clearly emphasized.
principally due to
with trade volume
expansion) has been
a feature of the bulk
carrier market for
reflected in the
market. In 2015 the
balance was affected
adversely by a fleet
growing by around
3%, while trade was
flat or only
addition to these
freight rate changes.
Cargo volumes loaded are continuously varying from week-to-week, or month-to-month, within broader trends while geographical patterns also alter, partly for seasonalreasons. In some trades inventory building or destocking by importers has a noticeable impact. Port congestion and delays disrupt
cargo flows. On a behavioural level, market sentiment and expectations as well as derivatives trading also contribute to short term fluctuations in physical market rates.
The Baltic Dry Index (BDI) reflects these changes. This index, compiled by the Baltic Exchange, is based on current bulk carrier freight rates (mostly time charter hire rates) for a wide variety of ship sizes and employments. It therefore can be regarded as a useful very broad indicator for the entire bulk carrier market.
After beginning 2015 at a low 771 points, the BDI declined further to just over 500 in mid-February. Following a slight pick up, the index stayed mainly within a depressed 550–600 range for three months from early March to early June. The next two months saw a doubling, which peaked at 1,222 in early August, but then a downtrend started. The decline continued for the remainder of 2015, with a couple of short rallies, and by late December the BDI was at 475, near an all-time low point of 471 reached a week earlier. Overall, it was a very weak year for the bulk carrier freight market.
FREIGHT MARKET PROSPECTS
As the new year begins, are there any signs of a change in the bulk carrier market’s trajectory resulting in higher freight rates? A pickup in trade volume growth would assist, especially if coupled with additional steps towards bringing fleet enlargement down further. But how likely are such events?
Despite last year’s unexpected rapid reduction of global seaborne dry bulk trade growth, arguably a second consecutive year with a similar outcome is not inevitable. Much depends upon China’s commodity imports, especially coal and iron ore. These are now seen as key uncertainties, with both the direction and magnitude of changes, possibly large, becoming more difficult to forecast. If these commodities continue to plummet (coal), or cease expanding (iron ore), it will be harder for global trade to evolve positively. An optimistic view might suggest that world dry bulk trade could see 1–2% expansion, or possibly more, in 2016.
Bulk carrier fleet growth seemingly is heading for a growth rate of at least 3% this year. Given the extent of the newbuilding deliveries schedule for 2016, exceeding last year’s scheduled figure, actual deadweight deliveries may be larger unless delays and postponements increase. Nevertheless, it is now perhaps looking more likely that scrapping will remain high, possibly reaching or attaining the volume seen in the past twelve months, and preventing any substantial acceleration in fleet expansion.
Shipowners’ collective decisions affecting bulk carrier fleet carrying capacity have a more certain impact than a focus on waiting for trade expansion, over which the shipping industry has only quite limited influence. During the year ahead, a combination of accelerated scrapping, newbuilding delivery postponements (or cancellation of orders/conversion to other vessel types, although this action applies mainly to orders for later delivery) and possibly laying-up ships, could greatly alter market dynamics.
Changes in other influences will affect the result. For example, even a small change such as half a knot in the average speed of the entire world fleet would have a sizeable impact on carrying capacity over a whole year. Trading distance and port congestion variations are other visible factors affecting capacity available. Neither is easy to predict. But the foregoing broad indications of trade and fleet evolution point to limited scope for an upwards trend in bulk carrier market rates to persist through the next twelve months.
Several analysts agree that the bulk carrier market outlook is challenging. A recent report by Clarksons Research said that “the pressure on the dry bulk market is likely to be sustained in 2016 given expectations of slim trade growth...the outlook for the near future remains difficult”. Drewry Shipping Consultants recently offered the opinion that “the gloomy outlook for the dry bulk shipping market continues...the market is not expected to return to profitability before 2017.”