Bulkcarrier Fleet Growth In Limbo?
The pace of bulkcarrier fleet growth has fallen sharply since 2010, when the fleet grew by a record 17%. In 2016, the supply side response to difficult market conditions saw the bulker fleet grow at the slowest pace so far this century, while current projections also indicate a further easing in the near future. Given the range of possible scenarios, the question is how low (or high) could bulkcarrier fleet growth go?
A 21st Century Low
Against a backdrop of oversupply built up over several years, average bulker earnings hit a 14-year low of $6,218/day in 2016. This exacerbated financial pressure on owners, triggering supply side measures including firm scrapping and delivery deferral, which combined to see the pace of bulker fleet growth hit a 16-year low of 2.3% in 2016. Furthermore, while overall bulker fleet growth was sluggish, the Handymax fleet grew 4.9% in 2016, reflecting the recent popularity of Ultramax orders. Without firm levels of Handymax growth, bulker fleet expansion might have been closer to 1% in 2016.
Breaking Down With Demo
The subdued pace of total bulkcarrier fleet growth in 2016 was partly driven by firm demolition activity. As dry bulk market conditions deteriorated and secondhand prices for 15 year old bulkcarriers fell close to scrap values in 1H 2016, owners responded by scrapping 297 units, of a combined 23m dwt. While the pace of demolition slowed in 2H 2016, total bulkcarrier scrapping still hit 29m dwt in full year 2016, which was the third highest total on record.
A Low Bar For Deliveries
Depressed dry bulk market conditions also drove a firm increase in the rate of the ‘non-delivery’ of the scheduled bulkcarrier orderbook. Indeed, ‘non-delivery’ of the start-2016 bulkcarrier orderbook reached a rate of 46%, compared to 36% in 2015. As a result, overall bulkcarrier deliveries dropped to a 7-year low of 47m dwt in full year 2016.
Some Swing Scenarios For ’17
Looking forward, the pace of bulkcarrier fleet growth is expected to remain subdued. Current projections indicate expansion of around 2.0% in 2017, based on 37m dwt of deliveries and 21m dwt of demolition. However, fleet projections are clearly very sensitive to the assumptions used. For example, using ‘base case’ demolition assumptions and adjusting for the rate of ‘non-delivery’ of the start 2017 orderbook, projections for bulkcarrier fleet growth range between 1.3% if the rate of ‘non-delivery’ matches the 2016 level, and 4.6% if all tonnage enters the fleet on schedule. Meanwhile, using ‘base case’ delivery assumptions, bulkcarrier fleet growth could range between 0.4% if demolition matches the current record scrapping levels seen in 2012, to as high as 2.6% based on the more conservative levels recorded only two years later.
So, there is a great deal of uncertainty regarding the exact levels of bulkcarrier fleet growth in 2017. While there is a ‘high case’ scenario, continued ‘non-delivery’ in the year to date suggests that this is less than likely. Overall, while it is still unclear how low fleet growth really will go, it does appear that the short term looks set to see a period of relatively subdued expansion in bulkcarrier capacity.