The bulk carrier market has bottomed out, but no one knows when it will recover.
2016-10-17 09:00
Global Bulk Carriers ( Ship Type Shipyard Trading The market is heavily impacted by overcapacity and insufficient cargo demand, leading to low freight rates for bulk carriers, with operators struggling to barely break even. Although the dry bulk shipping downturn has passed, there are still no signs of recovery in the current market.
At a recent maritime finance conference in Singapore, speakers summarized the current dry bulk shipping market as showing no clear signs of recovery, with supply and demand imbalance unresolved. Arjun Batra, Managing Director of Drewry, stated: “Our view is that while the bottom of the dry bulk shipping market is behind us, the recovery process is quite lengthy. On the positive side, the dry bulk shipping market is not declining further, but fundamentally, the upside is also quite limited.” Due to oversupply and a lack of strong growth in transportation demand, especially with the slowdown in China's economic growth reducing cargo imports, the fundamentals of the dry bulk shipping market remain fragile. As early as 2001, the large Chinese market single-handedly supported the entire dry bulk shipping market, continuously pushing up freight rates. In the mid-to-late 2000s, the prosperity of the dry bulk shipping industry stimulated irrational growth in new ship orders, leading to a severe oversupply of capacity and a significant drop in freight rates. Khalid Hashim, Managing Director of Precious Shipping, stated: “Unfortunately, all shipowners are like unsupervised children; you give them candy, and they want more, even though they already have plenty.” The shipowner repeatedly called for a halt to the construction of new ships and accelerated scrapping of older vessels, which is the only viable solution to address overcapacity and allow the market to recover healthily. Michael Nagler, head of Noble Group, pointed out that commodity demand has been quiet so far this year, and the market downturn will last for several years. Although freight rates for Capesize bulk carriers have risen, this is an artificial result, and worse, people actually believe the market is recovering and are therefore deciding to order more ships, which will be a disaster. The BDI index has exceeded 900 points, and despite the rise in freight rates, Capesize bulk carriers clearly do not fit the current market conditions. “I wouldn’t invest in Capesize bulk carriers; if I had invested in Capesize bulk carriers, we would have gone bankrupt six or seven months ago. Handysize and Supramax bulk carriers better reflect the current market situation,” said Pankaj Khanna, CEO of Pioneer Marine. Batra of Drewry shared the same view. “The downturn has been too long, leading to tight cash flow for shipowners, and even the best shipowners are already facing difficulties,” said Christoph Toepfer, Managing Director of Borealis Maritime. Khanna also pointed out that the main problem shipowners are currently facing is depleted cash flow: “Securing cash flow is the most important issue right now; only companies with strong balance sheets can survive. Those shipowners who can survive will not only be able to obtain financing but also have ample cash on hand.” Furthermore, the meeting did not mention any positive signs for dry bulk shipping, and almost no shipowners mentioned predictions about when the dry bulk shipping market will recover.
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