Next year promises to provide some breathing space for bulker owners as the dry bulk fleet is likely to grow at the slowest pace seen since 1999, according to BIMCO, which expects global demand to outstrip supply growth in 2018.
“As the dry bulk fleet is already expected to grow at a pace that matches demand growth expected in 2019, the focus must be on improving the fundamental balance ahead of that,” BIMCO said.
China’s imports, particularly of coal and iron ore, grew tremendously in 2017, and the second half of the year has been profitable for several bulk owners and operators. If 2018 delivers similar demand growth (+5 pct), the bulk industry will see profitable business for the full year.
“But, be aware that 2018 may not be quite as strong as 2017, and profits may not come around until 2019 , if the ongoing recovery is not handled with care, ” BIMCO’s Chief Shipping Analyst Peter Sand cautions.
As stressed, the level of growth in the fleet and the extent of demolition of excess capacity are key factors in the 2018 market.
“Unfortunately, we see weakening demolition activity, and the bulk fleet keeps growing, which can hinder market recovery. As the nominal fleet growth in 2018 is expected around 1 pct, the focus now turns to maintaining slow steaming. If we get notably higher average ship speed the pace of recovery will slow down, if not go directly into reverse, ” Sand says.
“The industry has got its work cut out to avoid a prolonged dip in freight rates during the first half of 2018 as volumes seasonally decline,” he added.
Market recovery
During the third quarter of 2017, freight rates turned profitable for all sizes of dry bulk ships. Namely, ships deployed in the spot market have been fixed at a level covering operational expenditure, and financing costs include repayment of debt.
It is the first time since 2012 that it has happened at industry average level, BIMCO noted.
At the start of 2017, there was only a slim improvement in the market (0.2 percentage points) as the demand growth rate (+2.2 pct) was forecasted to outstrip the fleet growth rate (+2 pct) by a small margin, data from the association shows.
BIMCO now forecasts 2017 will reach a demand growth rate as high as 5 pct and a fleet growth of 3 pct, improving the fundamental market balance by two percentage points.