Despite better demand side conditions on the “road to recovery” for the dry bulk shipping industry, the supply side is worse off, according to international shipping association BIMCO.
As ship owners’ 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, BIMCO said. But staying on the road to recovery requires a series of extremely tough and sustained measures to be taken, year on year.
“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,” BIMCO Chief Shipping Analyst, Peter Sand, said.
“The market has risen only from ‘catastrophic’ to ‘gloomy’ – so the need for shipowners to take decisive action remains,” he added.
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.
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, BIMCO said.
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.
While BIMCO’s estimate for newbuilt deliveries remains on target for 50 million dwt, the shipping association’s forecast for demolition of dry bulk tonnage for the full year of 2016 must was revised from 40 million dwt down to 35 million dwt.