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Global dry bulk shipping in the brink of disastrous crisis

Global dry bulk shipping in the brink of disastrous crisis

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What is Dry Bulk Shipping?

The term “dry bulk carrier” is used to distinguish bulkers from bulk liquid carriers such as oil, chemical, or liquefied petroleum gas carriers. Very small bulkers are almost indistinguishable from general cargo ships, and they are often classified based more on the ship’s use than its design. A bulk carrier is a ship constructed with a single deck, topside tanks and hopper side tanks in cargo spaces and intended to primarily carry dry cargo in bulk; an ore carrier; or a combination carrier. However, most classification societies use a broader definition where a bulker is any ship that carries dry unpackaged goods. Multipurpose cargo ships can carry bulk cargo, but can also carry other cargoes and are not specifically designed for bulk carriage. Since the first specialized bulk carrier was built in 1852, economic forces have fuelled the development of these ships, causing them to grow in size and sophistication. Today’s bulkers are specially designed to maximize capacity, safety, efficiency, and durability.

Today, bulkers make up 15% – 17% of the world’s merchant fleets. The key factors driving growth of the global dry bulk industry include rising urban population, accelerating global economic development, growing steel production and increasing global pig iron industry. Some of the noteworthy developments of this industry include downturn in the dry-bulk charter market, containerization of dry bulk. However, the growth of respective industry is hindered by Chinese economic conditions, the acts of piracy and risk of oversupply and cyclicality.

Image courtesy of JAXPORT at Flickr.com
Image courtesy of JAXPORT at Flickr.com

What challenges will it face?

Dry bulk freight rates in 2016 will be, on average, lower than in 2015, as the medium-to-long term fundamentals for dry bulk shipping will remain challenging, according to the latest edition of the Dry Bulk Forecaster report. The dry bulk sector has seen a period of recovery in recent months based on higher iron ore, coal and grain trade. The boom in iron ore trade that has resulted in record exports out of Australia and Brazil is expected to be a short-term phenomenon as it has mainly been based on iron ore restocking due to low inventories, hence resulting in stronger Capesize engagement particularly in the Pacific basin. Seasonal iron ore restocking activity in China will relax over the next few months as inventories increase. A sharp increase in layups, order cancellations and high demolitions are currently playing a major role in correcting the massive tonnage supply problem in the dry bulk market. This will result in modest improvements in freight rates in the coming quarters. But, the supply ordered by China, which is scheduled for delivery from 2018, risks depressing rates of the larger vessel segments compared to last year´s.

Related: If you want to read more about Worldwide Shipping Bankruptcy, Suzzanne Uhland invites you to follow the link.

In the Brink of Crisis

Image courtesy of Adam Cohn at Flickr.com
Image courtesy of Adam Cohn at Flickr.com

The global commodities bust has rocked the dry-bulk shipping industry, with a wave of bankruptcies washing across the sector and major players forced to restructure, divest or scrap assets. The market is extremely depressed and these conditions are likely to continue in 2016, exacerbating dry bulk firms’ losses, increasing costs and creating obstacles to obtaining financing. This could start a wave of bankruptcies. So far, more than half a dozen shipping companies from countries including Hong Kong, China, South Korea, Japan and the U.S. have filed for bankruptcy in the past two years. This wide industry crisis came as an inevitable consequence of the collapse of the shipping market itself. The closely watched Baltic Dry Index of dry-bulk shipping freights, a measure of global supply and demand for shipping of commodities such as minerals, metals and grains, continued to plumb unprecedented lows.

China, the world’s largest importer of bulk commodities, is slowing down its demand much more quickly than expected. Like the mining companies, whose cargoes make up the core business for dry-bulk carriers, shipping companies borrowed too much to expand their fleets when commodities prices and freight rates were soaring.

With the lack of the necessary measures to solve the problems, it is expected that dry-bulk shipping freight rates will deteriorate further through the course of the year and to remain weak in 2017. Part of the problem is that there is much more carrying capacity than the need of the market. To cut some of that oversupply, dry-bulk ships with a total capacity of 40 million deadweight tonnage will be sold for demolition this year. Even this measures could not solve the problem. It is said that while container shipping companies that successfully implement cost-containment measures could remain profitable in the second half of 2016, while the financials of smaller, unrated, especially dry-bulk shippers will remain stretched, which will probably lead to more bankruptcies.

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