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Extent of fall of dry bulk market not expected, recovery under way says shipbroker

The collapse of the dry bulk market caught many under surprise, as the extent of the fall wasn’t expected says Yiannis Pachoulis, President of the Hellenic Shipbrokers Association in an interview with Hellenic Shipping News Worldwide. He went on to mention that although demolition activity has picked up significantly, it is – by any means – not enough to compensate for the size of dry bulk vessels entering the global fleet. Still, he maintains that dry bulk rates are headed for a mild recovery in the coming weeks, but the full recovery shouldn’t be expected until mid April.

Since the start of the year, we’ve witnessed a dry bulk market collapse. Why has this occurred? Was the fall expected or did its extent take some under surprise?

It is true that the market actually failed to absorb the newbuilding tonnage which was delivered during the last couple of years. The rule of supply and demand which is the major factor in shipping was not kept in a healthy balance, resulting in the so called collapse of the market. The freight index BDI (Baltic Dry Index) reached the lowest levels of the last decades, but again if we compare the report of December 5th 2008, when the market collapsed due to the well known reasons , with the one of 4th February I think that although the general index is lower the individual indexes of the different types of vessels are higher.
We have to admit that although it was an expected fall, the extend of it was not expected.
But we shouldn’t forget the Far Eastern New Year holidays when the movements of cargoes are limited to all Far Eastern Countries.

Is China in a position to be the dry bulk market’s powerhouse, like it has been in the past years?

China has proved that it remains a healthy market, having strong potentials which will allow international shipping to be kept busy. The 20-year development program of the Chinese government will require huge quantities of raw materials, most of which will have to be imported. Therefore, China will remain the dry bulk powerhouse for a long time, as they have to have the necessary infrastructure in place, which in turn will allow them to be self sufficient, especially in the area of agricultural production. On the other hand their rapidly developing heavy industry will be using all sources of mining products from the worlds’ producing countries.

What about demolition activity? Will we see more scrapping taking place this year in the dry bulk market and is it enough to compensate for part of the newbuilding deliveries?

Well that’s a good question. Although the scrap prices are still high and the number of vessels headed to scrapyards is increasing giving a small breath to the freight market, it still cannot reach the number of the newbuilding deliveries. Another factor is that the size of the vessels which are scrapped does not correspond with the size of the vessels built today. Don’t forget that during 80’s a 50,000 dwt vessel was considered Panamax while today is a small Supramax. Therefore the balance cannot be kept, as most of the new deliveries are of the larger size types.

How do you see the market behaving in the coming weeks? Is a rebound to healthier levels imminent or will ship owners have to be patient and weather the storm?

I strongly believe that the market will improve in the coming months, as the new Letters of Credit of the Eastern New Economical Year will be materialized and new opportunities will appear. This should occur between mid April and end May. Till then, the market will show a minor improvement with fluctuations which will allow the vessels to survive till the actual improvement.

Could you provide us with some insight in the levels of tonnage oversupply in the market at the moment?

If we consider that during 2011 an average of 8 million DWT was delivered monthly and approximately 6 million DWT was delivered during January 2012, totalling 102 million DWT. Meanwhile, while the total demolished tonnage was only 22.5 million DWT, although positive itself, gives a glance of the tonnage oversupply. The total orderbook for the 2009-2014 period was representing over 50 per cent of the worlds’ existing fleet. Of course there were cancellations and resales which haven’t allowed for a more accurate calculation of the newbuilding fleet. But it is obvious that there is an ‘oversupply’ affecting the market even if the demand is slightly increasing.

Will oversupply issues become worse before they improve?

That’s another good question. It will all depend on the demand. Provided that the commodity prices, especially those of iron ore and coal, will be attractive compared to those provided by the new North Chinese mines, then we might stand a chance of improvement. Oversupply might prove to be the critical factor in this trade as well, considering the 19 new deliveries of over 400,000 DWT VLOC’s which are expected to be delivered during 2012 in addition to approximately 125 new Capers to be delivered at the same period…

In terms of demand, could other countries like India come to the help of dry bulk ship owners?

Of course, we hope that India, Brazil, Russia will be of help, but we have to remember that the major problem still remains the financing of the trade. We are still under an economical pressure, money aren’t easy to come by and in order to have a trading improvement which will lead to a shipping growth, we need adequate financial facilities. Fortunately, we still have a soft US Dollar which assists in this respect, but again the oversupply of tonnage will not help.

Do you expect shipping companies to come under further pressure from banks and lenders in general, with some of them even exiting the market all together?

Well, a depressed market is leading to pressure from the financiers, especially to the owners which have ordered or purchased vessels during the high-price period of 2007-2008.
It goes without saying that the banks are more wise and mature now, than during the last big crisis of 1981-1986, so I personally feel that having good advising panels, they will be in a position to assist owners which are facing difficulties in repaying their loans, rather than to allow them to exit the market. But again, it all depends on the economical status of the financial institutions together with the world’s economical situation.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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