Freight expectations may be too high for 2025

Strong fleet growth and groaning stockpiles will see bulker owners struggle to match 2024’s performance, writes Will Fray, Director, MSI.

 

The fortunes of the dry bulk market in 2024 have been largely supported by a combination of stockpiling activity in China and disruptions to trade patterns masking a broader underlying weakness in commodity consumption.

Taken together, these positive drivers have more than offset the negative impact on freight earnings of fleet growth of around 30m dwt.

 

Now that China’s coal and iron ore stocks are near record levels and underlying consumption dynamics remain weak across the world, it’s difficult to see much improvement in cargo volume growth in 2025.

 

Despite the generally positive year, expectations for a boost during the typically strong Q4 period have not been met. A slide in the Capesize freight market started from the very beginning of Q4, with spot rates trading down to as low as $15,300/day by the end of October – a 50% decline over the month.

 

The most worrying decline is however reserved for the Panamax benchmark which is now approaching year to date lows of just above $9,000/day.

 

The downbeat sentiment has filtered through to the smaller vessel segments as well, with both the Supramax and Handysize markets trading at, or close to, their lowest levels for the year.

 

In addition, as we have previously emphasised, while the absolute magnitude of trade volumes is critical to market balances, changes in trade patterns and the efficiency of the trading fleet can have an equally significant impact on overall shipping demand.

 

As positive as raw commodity trade volumes have been, the dry bulk freight market this year has benefited from extra support provided by longer voyage distances - tonne-mile requirements have jumped by 5.2% yoy in 2024, the highest growth since 2013.

 

A number of shifts in trade flow patterns have led to this impact, most notably the disruptions at both the Bab el-Mandeb Strait and the Panama Canal, as well as the re-direction of coal trade flows away from Europe and into Asia.

 

All told, MSI estimates dwt demand growth to have been 4.4% yoy this year – equivalent to an additional 33m dwt of new dry bulk capacity required. This is enough to justify the generally positive year for bulker freight markets but, since demand drivers are still relatively strong into Q4, what is undermining market balances now?

 

Signs are showing that the cumulative effect of supply growth is beginning to weigh on the market as we approach the end of the year. At 33.1m dwt, MSI’s latest estimate for 2024 deliveries is slightly higher than our previous forecast of 30.8m dwt.

 

This is partly due to better-than-expected yard delivery performance in China. At the start of this year, 21.7m dwt of dry bulk tonnage was due to be delivered by Chinese shipyards before the end of September – in the event, 18.8m dwt was successfully completed, a delivery rate of 87%. This is much improved from 79% in 2023 and 81% in 2022.

 

Meanwhile, scrapping activity remains thin, and lower than expected. Just 0.06 Mn Dwt was demolished in September, for example, resulting in a 77% yoy decline for Q3. Whilst October signalled a slight near-term improvement, with scrapping rising to 0.44m dwt in the month, MSI has revised its scrapping forecast for 2024 downward again, from 6.0 m dwt in our previous forecast to 4.16m dwt.

 

Taking deliveries and deletions into account, the fleet will have expanded by 28.9m dwt this year, a slight increase on 2022 and 2023.

 

Incremental demand factors explained above have helped to absorb fleet expansion of 28.9m dwt for most of this year, but with more than 36m dwt scheduled to be delivered in 2025, fleet expansion is not expected to slow down any time soon.

 

 

Absorbing an additional 36m dwt next year would be a tall order for the dry bulk market. To provide some context, if fleet efficiencies remain unchanged in 2025 compared to 2024 (eg: the same cargo-Dwt ratio), an extra 240 MnT of trade would be required to accommodate this new capacity.

 

Historically, annual trade growth has surpassed this level only three times, with the average annual increase over the past decade being well below this at 75mt. As it happens, MSI is expecting an increment of just less than 100 MnT in our Base Case, equivalent to growth of 1.8% yoy and slightly below our previous forecast (Chart 2).