Dry Bulk Market Crisis: An Opportunity or Threat?

The shipping industry is experiencing the biggest 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 downturn seems to continue until 2017 if a viable equilibrium is not achieved.

2012.07.11 - Dry Bulk Market Crisis An Opportunity or Threat

The recent measures in 2013 which promoted the replacement of older tonnage with newer in combination with the Chinese financial backing provided to shipowners resulted in a large orderbook that made freight market to perform at very low rate levels. In addition, there is strong disappointment for private equity funds which invested large amounts because their expectations failed to materialize.

The limited growth on key trades in 2015 makes average bulkcarrier earnings to drop at around $6,500 per day. China, the world’s biggest dry bulk market, has decreased its coal imports at a significant level that cannot be recovered by other positive trades such as iron ore. 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 of 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 $32m while only 35 new ship orders have been placed from Jan to May 2015. The demolition activity counts for 262 ships or 17.3m in terms of dwt until May.

The positive news are that the Baltic Dry Index has started to move upwards during June and the rate of demolition will limit dry bulk fleet growth up to 2,4% this year. This makes investors wonder if it is the right time to get in the dry sector. The market risk of such an investment is at its lowest point, therefore it might be the right timing to get involved in  the game. The market is going to recover for sure but the question mark is when.

Author - John Nikolaou The article is written by John Nikolaou, Financial Analyst with a passion about the maritme industry.

Comments

  1. Georgios says:

    Be serious guys, such an article insulting the maritime community. Do you live on the earth or somewhere else? There is not any good sign for the dry bulk market to day and for the next two years at least. Now about the prices for which vessels you are talking about, for Chinese 5 year second hand that look like 20 year old or for Japanese 5 year old that look like brand new. Or, for Chinese new building that will last 12 years max or for Japanese that will last easily 25 to 30 years. Relax guys Dry bulk time has not yet come and it seems that we will see some descent rates after the 2020.

  2. Panagiotis Stefaanakis says:

    Great article….It is true what the author says…the dry bulk downturn will continue until 2017..,and it might be the right time to buy ships as because can buy cheap and make some good money in the future!

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