Thursday, November 27, 2008
Thursday, 27 November 2008
The massive supercycle in the dry bulk sector over the past five years has been driven more by the lack of supply in the capesize segment of the market than by increased demand, according to Pacific Carriers commercial director Keith Denholm. This had led to new developments in the industry such as non-shipping companies jumping into the fray to get a piece of the action as well as creative solutions like converting very large crude carriers (VLCCs) to very large ore carriers (VLOCs), Mr Denholm pointed out in a presentation at Lloyd's List's Asian Shipbuilding Summit 2008.
As a result of the combination of this huge supply coming onstream and the sharp drop-off in demand, the benchmark Baltic Dry Index has plunged over 90 per cent from its peak earlier this year to its current levels. And the situation is set to get worse.
Even with at least 30 per cent of the new order book for dry bulk expected to be cancelled, with most of that coming from the supramax and capesize segment, there will still be an oversupply of 320 to 370 capesize vessels in the global iron ore market. In addition, many of the vessels due for delivery this year and next are at too advanced stages of completion to be cancelled, with an average of 421 ships being delivered now.
'There's going to be a lot more blood to be spilt out there,' said Mr Denholm. 'I can't see many operators surviving beyond July because the numbers involved are massive.'
The only bright spot on the horizon is that the smaller-sized ships will continue to do well. The 15,000 to 32,000 dwt sector, commonly referred to as the handy sector, will likely prove the most resilient. The global fleet in this segment is very old and there is little new tonnage coming in because the new players had focused on the bigger sizes with an eye to the fat profits being made earlier in the year.
With the smaller size of cargoes now being transported, the short supply of these vessels is supporting rates. 'There is much more cargo going on smaller sizes while the capesizes are a monumental problem,' said Mr Denholm.
What the current market has done, however, is that it has 'brought forward the inevitable, and the industry gets to clean out the 'shady' operators, which will be positive for the long term', he added. Mr Denholm also sees it as a chance to pick up good assets cheaply from distressed companies.
Adapted from Business Times Singapore