The Dry Bulk Market Will Become Profitable in 2019, If …
The dry bulk market could become profitable again in 2019 – but only if a series of extremely tough and sustained measures are taken by shipowners, year on year.
2016 has to be the turning point in addressing the fundamental imbalance of the dry bulk market.
We cannot expect any positive surprises from the slow-growing demand side. The enormous overcapacity of ships must be addressed starting now and continuing over at least the next three years.
BIMCO President, Philippe Louis-Dreyfus, says: “The dry bulk market is in a terrible condition. A condition that can only be changed by industry actions. Past leaders of the industry have turned things around when needed in the 80s and 90s. It is now time for the current decision makers of the shipowning industry to step up and act decisively together to bring back a profitable market. We really need to demolish an enormous number of ships and refrain as much as possible from building new ships.”
The annual average net fleet growth from 2007 to 2015 was 45 million DWT (8.6% per year), while the demand growth for the same period was 4.5% per year.
BIMCO has modelled the period from 2007 when the dry bulk fleet was at its peak and trading at a utilisation rate of 99.9%. The BIMCO model estimates that the dry bulk fleet was sailing at a utilisation rate of 71% in 2015, and has dropped to 70% in 2016.
In stark contrast to the peak 99.9% utilisation rate in 2007, by 2015 the utilisation rate had dropped to 71%. This left 227 million DWT of excess capacity above the actual demand in 2015.
What does 227 million DWT look like?
* 1,260 capesize ships of 180,000 DWT, or 73% of the entire capesize fleet
* all ships built before 2006 within the total current fleet or
* the past five years of dry bulk fleet growth.
The whole dry bulk shipowning community must work together to realise the demolition of ships and avoid the temptation to order new ships. This will demand a fresh look at the business model in dry bulk shipping.
BIMCO President, Philippe Louis-Dreyfus, says: “We need to get rid of a lot of the dry bulk tonnage. But ‘we’ means everyone! I have long advocated scrapping all bulkers over 20 years old and I have none in my fleet. But I don’t seem to have convinced everyone yet in the shipping world! Too bad for the safety of crews, the environment and … the market!"
He added: "No one is shielded any more, we are all at the mercy of the spot market. To stay in business you need to adapt or leave the industry. I am confident that all players in the industry feel the severity of the downturn. Now they also know where we are, how serious it is and exactly what needs to be done to turn it around.”
The outlook of years of loss-making freight rates is bound to change the industry. There will be bankruptcies and consolidation of fleets. Successful owners of the future will operate large fleets with the size and scale to be able to adopt a risk management approach to chartering. They will plan to have sufficient ships deployed on longer term charters to ensure that the business has the cashflow to sustain it through future downturns.
Consolidation may, in turn, mean that the larger customers are able to fulfil the majority of their dry bulk shipping requirements from a small number of larger shipowners, this will make it much more difficult for smaller “asset play” owners to survive in the major dry bulk trades.
The next three years will be a game changer, not only for dry bulk shipowners, but also the broader industry.
