Hard times ahead for the bulk shipping market

Rocky times will continue for bulk markets with Capesize owners suffering more than most, according to leading analysts.
Although the Baltic Dry Index made a weekly gain of 125 points in the week ending 27 May on the back of seasonally higher imports of iron ore to China, this did not disguise what a dire 12 months the market has suffered — a year ago the BDI figure was above the 4,000 mark.
Looking ahead, the outlook for owners in terms of charter and spot rates is almost uniformly poor, according to Ken Michie, Managing Director (dry cargo) at Clarkson Asia.
He told delegates at Coaltrans Asia, held in Bali, Indonesia at the end of May, that global cargo demand growth prospects were strong despite a poor start to the year which was mainly weather-related. However, he said the size of the bulk carrier fleet and newbuilding orderbook was casting a long shadow over the market.
“For many years the growth of the fleet was steady and sustainable,” he said. “As the world grew, the fleet grew.”
This changed, he said, during the demand boom and rates spiral of 2007 and 2008 when the freight market went stratospheric and cash flooded the sector, most of it spent on newbuildings. Although bulk carrier delivery schedules have consistently slipped over the last two years, in most categories the orderbook remains huge.
“There is lots of demand coming on stream,” explained Michie.“Unfortunately the supply of tonnage is even greater so I see continuing oversupply going forward.The freight market is not going to recover in the foreseeable future.
“Rates will remain under pressure due primarily to the number of vessels that are being delivered.”
That downbeat assessment was shared by delegates at Coaltrans.Asked to predict freight markets over the next 12 months, some 61% expected them to remain flat or decline. Michie said he thought they would be flat because “when you’re near the bottom, you can’t go much lower,” although he said the smaller vessel segments still had some room to collapse further.
“It is foreseeable that freights will stay fairly low for an extended period,” he added.
“I also don’t think we’ll see that many bulk carrier orders in the foreseeable future.”
Even with scrap prices high, the high price of steel making special surveys an expensive option for older vessels, and the high cost of running older vessels due to inflationary bunker prices, Michie said he did not expect scrapping to be a major balancing influence on the market.
“The bulker market is relatively modern with the exception of the Handysize sector,” he added. “Most are less than 20 years old so there is a limit to what can be deleted.”
“For shipowners out there, there’s still a long way to go.”
Michie also argued that the Capesize market had become detached from the smaller vessels sizes. “Capes were the leading indicator for lots of smaller sizes, but we’ve started to see a change in that respect over the last year or so,” he said. “In 2010 the Panamax, Supramax and Handy sectors all had upturns, Capes did not.