Recovery of Dry-Bulk Cargo Shipping
Jul 27, 2013
Since the start of this year, dry bulk cargo industry is obtaining a fragile recovery from its disastrous four year decline started in 2008, but a new wave of ship orders and a setback of Chinese economy is threatening it. The Baltic Dry Index, a measure of commodity shipping costs, reached its lowest annual average in 26 years in 2012 amidst an oversupply of vessels and slowing demand. Following the trend, dry-bulk shipping rates touched a 14-year low in March 2012, after touching a life-high of 11,793 in 2008. In this period of turmoil several dry bulk shipping companies including Britain’s oldest shipping firm, Stephenson Clarke Shipping, and Italy’s Deiulemar Shipping filed for bankruptcy unable to pay their debts.
In general terms bulk carrier, bulk freighter, or bulker is a merchant ship specially designed to transport unpackaged bulk cargo, such as grains, coal, ore, and cement in its cargo holds. In 2012, approximately 4 billion tons of dry bulk cargo was transported by sea, comprising more than one-third of all international seaborne trade. The global fleet of 9,490 dry-bulk ships will haul an estimated 4.2 billion metric tons of cargo this year, 5 percent more than in 2012, according to Clarkson Plc, the biggest shipbroker in the industry.
Positive first two quarters
Since the beginning of the year, rates on the iron ore benchmark Capesize route from Tubarao, Brazil, to Qingdao, China have increased by $2.25/t from $17.25 to $19.50/t. Coal freight Capesize rates for Richards Bay to Rotterdam voyage increased to around $8/t in June from $5.90/t in April. These increases were all fuelled by a lower supply of new fleets into the industry in the early parts of the year. The Baltic Exchange’s main sea freight index, which tracks freight rates for ships carrying dry bulk commodities such as coal, iron ore and grain, plunged to a 16-year low of 647 last year. However, many believe that the peak is now over as more and more new orders are recorded by ship makers.
“The supply situation is quite staggering.” Raymond Ching Wei-man, Vice-Chairman of Jinhui Shipping and Transportation, stated to South China Morning Post.
Ship owners have splurged on a raft of new orders, taking advantage of cheaper prices, more fuel efficient designs and money from private equity funds looking for a new home. This oversupply of ships has caused a risk of charter defaults, lower freight rates and a rush for lease payments. Furthermore, this has caused companies such as Jinhui Shipping to report impairment losses on their existing fleet. Last year a staggering number of 256 ships were scrapped by dry bulk cargo operators indicating the overcapacity in this highly competitive segment of shipping.
“The ordering wave is indeed worrying,” Henning Oldendorff, chairman of Oldendorff Carriers reported to South China Morning Post.
The main worry regarding the new influx of dry bulk cargo carriers is that it happens in a time of economic slowdown in the world. Highlight of this adverse economic situation is the slow economic growth in China and the recession in global steel industry. However, the analysts are divided over the progress made by bulk shipping industry as Maritime-expert reports a positive outlook for dry bulk shipping industry starting from the 3rd quarter of this year.
“Dry-bulk supply and demand is currently challenged, but we believe there is a solid potential for recovery beginning in the second half of 2014,”
Earnings for ships that carry dry- bulk commodities are set to start recovering in 2014 despite the fears of slow economy and oversupply of ships as fleet growth slows to keep pace with demand for the first time in four years, said Citigroup Global Markets Inc.
Expansion of ship fleet will weaken to 5 percent amid fewer deliveries of new vessels, compared with an 18 percent average pace in the 2011-13 period, analysts led by New York-based Christian Wetherbee has disclosed to Businessweek. The main challenge is to stay afloat with heavy debts until the fortunes once again favours the dry bulk cargo industry.
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