Tonnage oversupply to overpower other boosting factors in the dry bulk market

Many analysts have advocated that the dry bulk market is heading towards a moderate recovery starting from 2014 onwards, as a result of improving demand, continuous scrapping of older dry bulk carriers and a less than overwhelming outstanding newbuilding tonnage. But, according to Mr. Yannis Pachoulis, head of shipbroker MegaChart and former President of the Hellenic Shipbrokers’ Association, “there are still issues with the financing of contractual letters of credit, necessary towards assisting global trade growth and as a result helping the shipping market reach higher freight rate levels”. He also comments on the recent trend of increased new building orders, especially in the already overcrowded Capesize market segment.

Since the start of the year, we’ve seen more and more newbuilding orders in the dry bulk segment. Which have been the driving forces behind this highly questionable decision by many, from a ship owner’s point of view?

The actual driving forces leading to newbuiliding orders are mainly the prices which show a drastic drop reaching very competitive levels in comparison with the ones experienced during the course of the last decade, together with the deep uncertainty of the shipowners, regarding the banking developments after the debt crisis in Cyprus.
It was therefore expected that the investments in shipping would be increased. Still, the current state of the freight market is not assisting towards this direction at the moment. The increased supply of the world fleet’s tonnage is still a major obstacle towards the market’s recovery. The number of vessels which were expected to be delivered within this year is expected to reach 1,172 bulkers of several types, including 258 ships in the 80-120,000 DWT range, which will have a negative influence in the balance of supply and demand.

Capesizes have once more proven to be the “weapon of choice” by most ship owners. But, the sector is still heavily oversupplied, maybe the most among other ship classes in the dry bulk market. Is aggressive pricing by some shipyards the reason behind this new surge of investments?

It is definitely a major reason, but again the shipowners investing in Capers are the ones which do have a good fleet already, which can cover the capers’ losses which are obvious at the time being. Most of them are betting that the capers market will improve and then their newbuildings will prove to be a prudent investment.
On the other hand, there are others which disagree with the aforementioned view, stating that the number of existing capers – not to count the approximately 144 ones which were expected to be delivered within 2013 – are more than sufficient to cover the needs of today’s market. Nevertheless we shouldn’t forget that if the market improves, then Capesize vessels will be the ones which will give a considerable profit to their owners, as they are offering the greatest potential revenue, compared to smaller dry bulk carriers.

For how long can the dry bulk shipping market rely on China for cargoes? With the Chinese economy rapidly evolving into a developed economy, thus losing its frantic growth rate, is China in a position to sustain the huge numbers of vessels ordered and delivered in the years to come?

China proved to be the driving force of the shipping market for more than a decade. Although their economy can be considered now as a developed one, China’s needs for raw materials remains unchanged and due to the 20 years governmental development program, I believe that China will remain the major importing country of iron ore and specific types of coal. Their plan is to be self sufficient in agricultural and other products for which a massive infrastructure is necessary for the development of the areas chosen. To my personal opinion China, with its approximately 700 million tons of iron ore imports, will remain the best client of the ore and coal exporters worldwide.

With the dry bulk market keeping its established “rollercoaster” status during this year as well, it seems that as of late, the market has been slowly decreasing again. Is the oversupply of vessels the main reason, or can we blame other seasonal factors as well?

There are several reasons for the decrease of the market, the oversupply being one of the major ones.
The international trade also hasn’t been very active after the 2008 financial and banking crisis, whose impact hasn’t yet been totally erased. As a result, there are still issues with the financing of contractual letters of credit, necessary towards assisting global trade growth and as a result the shipping market.
The shipping world is deeply concerned with the present situation, as May has proved to be the month of heightened dry bulk activity during the course of the past few years, due to the fact that most of the new Far Eastern Letters of Credit materialize within this month, something that didn’t happen this year, thus bringing an uncertainty regarding the forthcoming summer levels.

How do you expect the market to behave until the end of the year, given that we are rapidly approaching the start of the second half of 2013?

I could not be very optimistic for the rest of this year, although there are some analysts which are expecting a considerable increase after September. Personally I cannot find a reason for this increase, so I strongly believe that the freight market will remain at similar levels with the usual fluctuations and we might experience slight increases – being part of the fluctuations – but nothing extraordinary.

Do you share the view that a rebound is imminent in 2014, as by then it is expected that the imbalance between supply and demand will have been negated?

I wish I could share this view, but being always realistic I am not so optimistic, but again we have to admit that there are hopes for a rebound, based on the existing newbuilding delivery program for 417 bulkers – a considerably lower number than 2013- but again will need a good number of the older tonnage to be leaded to the scrap yards in order to achieve the balance.

A lot has been debated regarding the potential contribution of the Hellenic shipping industry, both in the country’s tax revenues, as well as in the drive towards the redevelopment and resurgence of the local economy. Which do you think can be the shipping industry’s role towards this direction? Have ship owners done what’s expected of them, given their individual wealth, or is there room for more help?

Shipping has always been the first supporting industry to the Greek economy. Shipowners are always sharing part of their wealth, whenever needed, with the community via donations which never reach the publicity.
As per the recent taxation program, shipowners have already accepted and paid for what they were asked and I am sure that they will always prove to be an assisting force in our country’s economical recovery. All people involved in Greek shipping have offered their share, in order to achieve this target.

Nikos Roussanoglou, Hellenic Shipping News Worldwide