Home / Shipping News / Interviews / Dry bulk market boosted by developing countries, fluctuations will remain

Dry bulk market boosted by developing countries, fluctuations will remain

The increased role of developing countries in the dry bulk shipping market is here to stay, according to John Pachoulis, the President of the Hellenic Shipbrokers Association. In an interview with Hellenic Shipping News Worldwide, said that the

recent rise of freight rates was something expected, as traditionally the market exhibits increased trade of cargoes. Still, he has warned that the market will still face increased fluctuations, at least until more countries rebound from the global economical crisis.

During the previous weeks, we witnessed yet another rise of the dry bulk market. Which were the driving factors behind this rise?

It is indeed a fact that the dry cargo shipping market showed an increase during the past couple of weeks. Statistically we are in the period of that upward trend, as we are expecting the Chinese announcements for the imports of raw materials for this year and yet we have the remaining cargoes of last years’ contracts which have to be transported. It is common in this period of the year to face a rise, but the dry cargo shipping market will face fluctuations, although not collapse, as some analysts insisted. We should always remember that the developing economies will support the international trade and shipping being major part of this trade will be moving accordingly.

What factors are causing this turbulence of dry bulk rates, we’ve been seeing since the start of 2009?

The unstable shipping market, but again at accepted levels, was due to the economical crisis which did not allow the trading houses to use the banking facilities, as they were not easily provided. This, as you might appreciate, brought international trade in a difficult position since September 2008, but the situation started improving during last year and we sincerely hope that will be further developed within this year. Another major reason was the recent US Dollars’ increased value, which prevented the trading movements, as the majority of worldwide trade is connected and depended to the value of this currency. In the meantime the raw material needs increased last year, especially from the Chinese steel industry, which allowed the larger types of vessels to reach considerably higher levels, leading the market generally to an unexpected increase. We have to point out that although the Chinese government announced last year that imports of iron ore would reach approximately 460 million tons, due to increased needs, it actually exceeded the record quantity of 580 million tons, with the known results for the Cape size vessels and the Panamaxes,Β  involved in this trade.

What’s to expect during 2010 regarding the course to be charted in terms of dry bulk rates?

I am generally an optimistic person, and fortunately my predictions proved to be rather realistic against foreign analysts which forecasted the collapse of the dry market. China, India, Russia, USA and Latin American countries will play a determinative role in global trade. The Chinese economy has the potential for further increase, although there are still internal problems to be resolved. It is not a fortuitous event that their exporting trade exceeded this of Germany already. But again we have to take into consideration the infrastructure needed for the development of their inner part of the country, as the recent developments are only based on the coastal side of China. Having discussed this problem with Chinese officials I was advised that the development will gradually cover the majority of the country within this and next decade. This of course will have an effect in shipping as the import of raw materials needed, will be increased tremendously.
As soon as the economical crisis will be solved, I sincerely hope and expect that the world’s trade will increase again, as all the above mentioned countries, together with the European ones, will recover the losses and will be considerably improved.
Concluding I expect the dry shipping market to remain at same or similar levels with the usual fluctuations for this year.

How do you foresee future cargo demand for dry bulk carriers to shape up?

Well, keeping always in mind that shipping, although it “might go down, but never die’, being the cheapest and safer way of transportation, will continue to have good employment prospects for most of the existing tonnage. If the world’s trade increases then there will be no problem whatsoever for shipping, especially for dry cargo carriers. It will of course depend on the easy use of the financial facilities which will allow new contracts and letters of credit to be materialized and assist both trade and shipping at the same time. Demand on dry cargo vessels will continue although new larger and in a better economical scale vessels are built and used and I am referring to VLBC’s (very large bulk carriers) up to 380,000 dwt which commenced to be used during last year for the carriage of iron ore and minerals, minimizing the cost of transportation of these materials. But still there is a good demand for all types of dry cargo vessels which will continue during this year. It is also noticeable that African countries have an increased trade especially in grains, rice and fertilizers, which with the recent discovery of a huge ore deposit in Sierra Leone, which is considered to be in the region of about 10 billion tons will give a further increase in trade of this area.

Do you think that the looming oversupply of vessels will soon become a reality, or is there any room for that to change?

The deliveries of newbuildings till 2012 will reach new records and this is a fact, which shipowners have to take into serious consideration. This will definitely lead some of the older tonnage to scrap yards which might prove to be a solution to the oversupply of vessels. But again everything will depend on the demand of vessels and the policy of the purchasing countries. We have to consider also that there is a dead period for the yards commencing from September 2008 till the beginning of this year. This will allow the resale of ordered or cancelled orders at more competitive prices and might balance the oversupply of tonnage after 2012. I firmly believe that shipowners having a good number of older tonnage and newbuildings, in order to avoid the inner competition, will allow the older tonnage to be replaced by younger ones and scrap, or sell the older ones for specific trade, resulting into a renewal of the existing fleet’s age with more efficiency to worlds trade transportation and betterΒ  economical results.

How would you characterize the current market for second hand vessels?

Depending on the age of the second hand vessels, it is considered rather on the high side. As everything depends on the shipping dry market, which the sale and purchase market is following, prices are stable at considerably high, but also accepted levels.
It goes without saying that the market fluctuations will bring some small fluctuations to the prices of second hand vessels, but again the age of the vessel is the major factor of its price. Furthermore we have experienced an increase in scrap prices recently ranging between US$ 370 and 450 ldt, which encourages shipowners for scrapping their older tonnage.

Do you think that second hand ships’ prices will go down again, or are we heading towards firmer prices?

As long as there will be profitable employment for dry cargo vessels the prices will be stable at today’s levels. No one can surely predict the levels which the sale and purchase market will be. Definitely this market allowing the prices to be stable, especially for well maintained vessels of a certain age and this seems to be continuing as the freight market is at acceptable levels.

As was expected in 2009, there were very few newbuilding orders for dry bulk carriers, given the huge orderbook and in many cases a lack of financing. Do you think that 2010 will be different in terms of new investments? Will resale newbuilding contracts be the most popular option among ship owners?

There will be a time gap in shipbuilding as there were no newbuilding orders for at least a year, in addition to the cancelation of a good number of existing orders, which will bring a need of employment to the shipyards. This will definitely have a price effect, so the resales and newbuilding prices will be reduced, or are already reduced considerably. In my opinion is not the huge orderbook that makes the difference, nevertheless shipowners, especially the traditional ones, having the means of financing facilities will gain the benefit of better prices. Financing today is the major problem as banks are not in a position, or willing to trust newcomers and are very careful in providing shipping loans. Hopefully 2010 might prove better than last year, but again the financing facilities will not be easily provided. Resale of existing contracts are already popular to the investing shipowners, giving them a chance to acquire new vessels at competitive prices. This also goes for stock exchange listed companies having another easier type of finance which can obviously take advantage of the prevailing lower newbuilding prices and can even negotiate fleets.

Nikos Roussanoglou, Hellenic Shipping News Worldwide

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping