• ARI Media

Dry Bulk: Supply Side Is Worse

Back in May, BIMCO disclosed a projected “road to recovery” for the dry bulk shipping industry. The main message back then on what the dry bulk sector must do to return to profitability was, and still is: “Scrapping ships and no new builds is the fastest road to recovery for the dry bulk market”.

As promised, BIMCO will monitor and report back to the dry bulk shipping industry on the progress made towards a recovery. 2016 must be the turning point in addressing the fundamental imbalance of the dry bulk market. Despite better demand side conditions recently, we cannot expect positive demand side surprises, coming to rescue eternally. The enormous overcapacity of ships must be addressed – starting now – and continued over the next three years at least.

Strong demand side growth helps as demolition interest has cooled

As shipowners’ interest in demolition has cooled, the supply side is worse off today than earlier estimates projected for 2016. Stronger demand side growth is the only reason for the improved market conditions in the dry bulk shipping sector.

In short, the fundamental balance of the market has improved, and freight rates can still reach profitable levels in 2019. But bringing profits back remains in the hands of shipowners themselves. But staying on the road to recovery requires a series of extremely tough and sustained measures to be taken, year on year.

BIMCO Chief Shipping Analyst, Peter Sand, said:

“The dry bulk market is still in a terrible condition. Regardless of a significant improvement in the BDI from its all-time low back in February 2016, the freight market remains lossmaking and in a very bad state.”

“The market has risen only from ‘catastrophic’ to ‘gloomy’ – so the need for shipowners to take decisive action remains.”

“When you claw your way back from the worst market ever – the road is long, rocky and tough. It requires stamina, adaptation and determination from all shipowners. The market has improved based on growing demand, but the sector cannot rely on this alone – which is out of its own hands.”

“The industry must act decisively to reduce the enormous overcapacity of tonnage by keeping demolition activity high, even as freight rates go up – to make the recovery a sustainable one.”

How are we doing on demolition of excess capacity?

For the first five months of 2016, shipowners were doing just the right thing. They were limiting the impact of new deliveries launched into the market by demolishing ships which were creating excess capacity.

From January to May, a net fleet growth of just 4 million DWT meant that the dry bulk fleet grew by 0.5%. This was right on BIMCO’s target to reach a net supply growth of 10 million for the full year, based on 50 million DWT of newbuilds fed into the market and 40 million DWT taken out of the market for demolition.

Much more needs to be done

As of early October, the changes to the supply side of the dry bulk shipping market are no longer on target, if judged by net fleet growth. This is because shipowners have halted demolition of excess shipping capacity while taking delivery of newbuilt ships at an unchanged pace. The dry bulk fleet today is 1.75% larger than at the start of 2016. 38.8 million DWT has been delivered in the first nine months of the year, while only 25.2 million DWT has been demolished.