Dry Bulk Market Crisis: An Opportunity or Threat?

By John Nikolaou

The shipping industry is experiencing its largest dry bulk market recession since the 1980s. The uncertain global economic outlook and the increased imbalance between supply and demand have lead to historical low freight rates. The current downturn might continue until 2017.

The recent measures of 2013 that promoted the replacement of older tonnage, allowed the Chinese to fund newer ships for shipowners. This resulted in a larger orderbook for Chinese yards, but gave way to lower freight ratest. Additionally, private equity funds have grown increasingly dissappointed because investments have failed to materialize returns.

The lower tonnage in key trades during 2015 have the average bulk carrier day rates to drop to around $6,500. China. the largest bulk market, has witnessed a major decrease of coal imports. Some shipowners have converted their newbuilding orders to tankers while others turned to pooling strategies in order to minimize their exposure.

As a result, the prices for second-hand vessels and newbuilding orders have dropped by nearly 40% and 95% respectively. It is worthy to note that a 5 year old Capesize costs around $32 million while only 35 new ship orders have been placed in 2015. 

The Baltic Dry Index has started to move upwards during June, but the rate of demolition will limit dry bulk fleet growth to only 2,4% this year. Investors contemplating whether to get into the markets will most likely hold back until freight rates being to increase. As of now, investments are at their lowest levels in years. 

John Nikolaou is based in Athens. He is a Financial Analyst with Coca Cola HBC and follows the maritime industry closely. The opinions expressed herein are those of the author and do not reflect those of The Maritime Executive.