The bulker conundrum

 Republished by kind permission of: A&A Thorpe, 131a Furtherwick Canvey Island, Essex SS8 7AT Tel: +44 (0) 1268 511300 Fax: +44 (0) 1268 510467 shipaat@aol.com

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The size and make-up of the bulk carrier orderbook is one of shipping's great unknowns. Even the best of the industry's statisticians cannot be sure of the details of cancellations, delays and deferrals. Some public companies, admittedly, have gone on record to declare their strategies, as they are bound to do. But literally hundreds of bulk carrier owners with ships on order are playing their cards very close to their chest.  
    

In a recent analysis, Clarkson assessed the present position. The bulk carrier orderbook, it says, is the biggest talking point in the industry, bringing together money issues, tragedy and, at times, farce.  At the turn of the millennium, the dry bulk business was struggling. Rates were down and business was relatively flat.  
   

By April 2002, Clarkson statistics reveal that the 20m dwt orderbook comprised just over 7% of the existing fleet, close to an all time low. Panamax tonnage, contracted at bargain-basement prices in 1999, was barely breaking even, with rates down to the low $5,000s by the end of that year. However the minimal volume of tonnage on order was one of the key foundation stones on which shipping's biggest-ever bulk boom would materialise. 
   

Subsequently, even when day rates rose to respectable levels – Panamax earnings in March 2005 exceeded $29,000 a day – owners and investors signed new deals in relative moderation as compared with their colleagues in the container ship sector who, at that time, had already signed deals for ships equivalent in capacity to more than half of the container fleet at that time. In contrast, the bulker orderbook totalled 77m dwt, just 23% of the fleet. By 2006, Clarkson says, this restraint looked to be a sensible strategy – one-year rates had fallen back again – to just $10,000 a day.
   

Whether or not dry bulk owners were influenced by frenetic activity in the container sector, we shall probably never know but, in any event, Clarkson says that after five years of restraint, 2007 was the year in which bulker owners caught the ordering bug. Rates shot up, climbing from the $10,000s of 2006 to more than $60,000 in April 2008. Owners and investors went mad: the orderbook mushroomed to more than 100m dwt in Jan 2007; doubling by October of that year; and reaching 300m dwt by November 2008. This was “perfectly timed to coincide with spot rates for a Capesize collapsing to $2,000 a day,” Clarkson notes. 
   

The analysts now believe that more than 270m dwt of this orderbook remains undelivered – since owners only began ordering in earnest relatively late in the cycle, not much of the new tonnage has yet been completed. However, huge numbers of new bulkers are due for delivery this year and, although rates have recovered to some extent, the prospect of absorbing such a volume of tonnage into a shipping economy where demand is still fragile, is truly daunting.
   

The challenge is greatest in the large sizes. Even to service a buoyant market, far too many Capesize contracts were placed and, however quickly the global economy recovers from here, cargo volumes on the relatively limited number of  Capesize trades will almost certainly not support the influx of new vessels.
   

In the smaller sizes, however, new opportunities are already emerging. New trades are evolving, well suited to handysize, handymax and Panamax tonnage. Owners of such vessels may have missed the unimaginable peaks of the Capesize sector – although their earnings in the first eight months of 2008 were also spectacular – but their ships may be the first to earn consistently good returns in the months ahead.