It is obviously very difficult to hold down fleet growth to improve the market
When judged by global volume, demand growth alone – 3.8% for the first six months – is not that bad. It’s just that the nominal fleet grew by 3.9% during the same period, and the active fleet even more. The trend points towards lower demand growth this year, as global volume demand has fallen since April.
It goes for all shipping sectors that tonnes-miles demand is measured by the volumes multiplied by the sailing distance. This gives a bit of insight into why container shipping is facing headwinds at the moment; 83% of the newbuilds delivered in 2018 are ships with a capacity of 10,000+ TEU. They were made for long sailing distances. This compares to 37% of the volume growth being short-distance, intra-regional trades (for example, intra-Asia or intra-Europe).
The capacity of the fleet is growing too fast for the demand to cope with it. All three aspects of the supply side have pushed up the fleet growth – in nominal as well as active terms.
Moreover, the fleet is more and more a matter of two tiers, divided somewhere short of 10,000+ TEU. Most of the new capacity is above the threshold, whereas all of the demolition is below. The two are still connected, but they get further and further apart – both in terms of deployment and earnings.
As the trade war goes on, more containerised goods are getting involved – mostly on the transpacific trade lane, but also on the transatlantic routes – as the EU and US are far from settling their disputes.
BIMCO expected the fundamental balance to improve in 2018 and higher freight rates across the board as a result of the fleet growing slower than demand; now it seems as if it’s not going to happen. This is partly because of demand growing marginally less than expected, but mostly because of much faster fleet expansion. Having said that, …
DRY BULK SHIPPING
An improving market, even as iron ore imports slip and the fleet grows faster
Freight rates have recovered a lot in 2018, but it is not strong across the board. After a steady decline since April, earnings for handysize ships slipped back into lossmaking territory on the very last day of July – and rates …
One of the drivers in the market during the first half of the year has been US coal exports, which were up by 31% in the first six months, peaking at 10 million tonnes in April.
The usual mega driver, Chinese imports of iron ore, is disappointing this year. … This year, China’s steel production is at a record high level, as more efficient mills are opening. High production is also coming on the back of strong steel-producing margins. Many of these mills are electric arc furnaces (EAF), which make steel out of scrap iron.
Across the board, demolition of dry bulk ships has slowed to a trickle: only 2.6m DWT has been demolished. This compares with 14.7m DWT in 2017 and 29.5m DWT in 2016. It’s a crystal-clear reflection of higher freight rates that now stop owners from scrapping ships.
The halt in demolition activity also means that we need to revise upwards our fleet-growth estimate for 2018. This narrows the improvement of the fundamental balance.
The trade war has already taken many dry bulk commodities hostage. More tariffs were due to come into force on 23 August, as additional US dry bulk products get tariffed by China – whereas no new Chinese dry bulk products have been hit by new US tariffs. What comes next? …
You could argue that owners should have kept up the pace of demolition, making an extra USD 1,000-2,000 per day on the 11,000+ ships in the fleet. But as the industry is so fragmented, with thousands of owners globally, every ship is important to its owner. As you can’t scrap one-quarter of a ship,…
As demand for transportation of dry bulk commodities increases throughout the year, BIMCO expects the recovery of freight rates to continue slowly but steadily. Expect higher volumes for coal, iron ore and wheat to dominate the market in the second half of the year.
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