Consolidation Expected in Dry Bulk Sector

bulk carrier

By MarEx 2016-10-06 20:25:00

Industry group BIMCO has published a report looking at the “road to recovery” for dry bulk shipping beyond the current market difficulties concluding that major changes are on the horizon.  

The key findings of the report include:

•    consolidation and risk management will be the new industry model for dry bulk shipowners – with parallel effects in other sectors:
•    the fragmented ownership of the dry bulk fleet cannot be sustained over the length of the downturn and we will see greater consolidation, meaning fewer and bigger companies
•    company stakeholders will seek a more sophisticated business model with better quality information and a greater focus on risk management
•    shipbrokers will need to provide a broader range of services:
•    the new, larger shipping companies will seek to deal directly with larger customers on major trade routes - plus more long term digitalization will place brokers under pressure to widen the services they offer
•    the Basel Convention on ship recycling will create scarcity and/or drive up the cost of finance for shipping
•    Basel III – and the proposed Basel IV – regulations will increase the cost of bank finance for shipping, banks will also focus more on customer credit risk
•    smaller owners may have to look for alternative means of finance in future
•    shipyards – though somewhat sheltered – will have to diversify
•    many shipyards may close or consolidate – but retrofitting environmental equipment to ships could provide opportunities.

BIMCO President Philippe Louis-Dreyfus said: “This crisis will affect shipping companies, not only economically and financially, but also sociologically. We will see deep changes in the fundamental structure of the shipping world and in shipping companies, mainly the smaller ones. A new business model will emerge, not just for shipowners but also for brokers, shipyards, financial institutions and other stakeholders.”

The new report follows the conclusion of BIMCO’s previous analysis that due to the severity of the current crisis the sector can only return to profitability in 2019 if shipowners deliver zero supply side growth, year on year.