Dry Bulk Market Review 2014
Freight Market Summary
Reversing developments of the previous year, the freight market trended sharply down in 2014 as characterised by a 63% fall in the Baltic Dry Index (BDI) over the year.
Handysize spot market rates averaged US$7,300 per day net, representing a 6% decline year on year, having started 2014 at US$10,530, fallen to a low of US$5,070 in July and finished the year at US$6,960.
This weak freight market was driven by continued global oversupply generated by the newbuilding deliveries of 2010 to 2012, compounded by regional demand-side weaknesses (see "key demand developments” below).
The unexpected decline in the second quarter was led by a collapse in Atlantic rates following the repositioning of more ships than usual into the Atlantic for the South American grain season. Bearish conditions prevailed until July. Improvement in the fourth quarter was less pronounced and more short-lived than the seasonal strengthening that is typical at the year end.
Conditions have remained very bearish at the start of 2015 and, in February, the BDI fell to its lowest since indices began in 1985. Newbuilding deliveries deferred from 2014 have coincided with a seasonal demand slow down due to the lunar new year holidays in China and weather-related cargo disruptions in key trade areas.
Baltic Handysize Index (BHSI) &
Baltic Supramax Index (BSI)
Pacific vs Atlantic Handysize Rates
* US$ freight rates are net of 5% commission Source: The Baltic Exchange, data as at 23 Feb 2015
Key Supply Developments
The market remained weighed down by the continued oversupply of larger dry bulk ships despite reduced net fleet growth in 2014.
The global fleet of 25,000-40,000 dwt Handysize ships grew 2.7% net in 2014 driven by 6.8% newbuilding deliveries and 4.4% scrapping. This segment of the dry bulk fleet saw a lower rate of deliveries than all other dry bulk segments in 2014.
Dry Bulk Scrapping versus BDI
The overall dry bulk fleet grew 4.4% net – the lowest level in over 10 years.
A reduction in port congestion in South America released capacity into the Atlantic in the second and third quarters.
Widespread slow steaming had continued to curtail effective dry bulk shipping capacity, but the dramatic drop in crude oil and fuel prices during the last quarter resulted in early signs of increased vessel operating speeds thereby potentially increasing global shipping supply.
Handysize Vessel Values
Ship values started strong but declined over the year influenced by the weakening freight market and, in the fourth quarter, the effect of the weakening Japanese Yen allowing Japanese sellers to accept lower US Dollar prices. Clarksons currently value their benchmark five year old Handysize at US$14.5 million - a level last seen in 2003.
Handysize newbuilding prices remained relatively flat over the year and currently stand at US$22 million.
Key Demand Developments
Dry bulk demand in 2014 is estimated by R.S. Platou to have increased by 4.1% year on year, weighed down by particularly disappointing second half cargo volumes into China.
Chinese coal imports declined 11% by 36 million tonnes due to slower economic growth, increased use of hydro-electric power and China’s actions to protect its domestic coal industry at the expense of imports. Conversely, coal imports into India grew by 26 million tonnes – not enough to balance China’s reduction.
The Indonesian ban on bauxite and nickel ore exports impacted global minor bulk trades throughout the year. China replaced some imports of these two commodities from other countries, but the overall impact on dry bulk demand was negative.
Chinese imports of iron ore grew by a healthy 14% or 113 million tonnes, particularly out of Australia where mining capacity had been increased, taking away market share from Brazilian miners. This resulted in a shorter average sailing distance thereby impacting tonne-mile demand for large bulk carriers.
Other Chinese dry bulk imports increased, although insufficiently to counter balance the above negative factors.
Overall dry bulk demand
Chinese imports – major bulks
Chinese imports – minor bulks
Dry Bulk Supply & Demand
2014 Chinese Minor Bulk Imports
The Handysize orderbook currently stands at 23% and the overall dry bulk orderbook stands at 21%. This size of orderbook remains an obstacle to restoring a healthier supply/demand balance in the freight market.
New ship orders placed (representing 8% of the fleet) decreased steadily during 2014 to the lowest levels since 2001.
The majority of dry bulk capacity on order is from Chinese shipyards, and we expect current market pressures to result in actual deliveries falling well short of scheduled deliveries.