BIMCOs shipping outlook august 2010
SHIPPING: There is no doubt that the main drivers in dry bulk shipping are beginning to show some muscle; China and perhaps even more so, vessel oversupply in particular in the Capesize segment, is responsible for recent weakness in rates as well as adding doubt to the future.
Demand: The fact that the BDI dropped for 35 consecutive days came as a rude awakening to the industry. The dry bulk sector had surprised on the upside for almost a year, since it came out of the abyss in the spring 2009. But the market which was almost completely kept afloat by massive Chinese stimulus that counterbalanced the inflow of new tonnage in 2009 and so far in 2010 - now reveals that the balance may be much tighter than feared.
Outlook: Looking at FFA levels (Forward Freight Agreements) the fourth quarter is foreseen to be strong, regardless of the Capesize delivery freak wave and the Chinese slowdown.
The FFA has however proven to be an unreliable forecaster many times before, and even though the recent drop in rates may be inflated by seasonal summer lull, BIMCO expects rates to remain under pressure as fundamentals indicate a clear bias in the balance towards too many ships for the available cargoes.
In the near future, demand for thermal coal and grain is expected to provide support to the freight markets and put a floor under the rates, but the Chinese steel markets - and with it the demand for iron ore - are needed if the floor is to remain throughout the year. A supporting factor going into Q4-2010 is the new contract price for iron ore, which will be considerably lower than it is in Q3-2010, as it mirrors to lower spot prices that we see at the moment.
Tanker Shipping:
Supply: New orders for tankers are beginning to push deliveries in 2012 and 2013 significantly upward. Since last SMO&O two months ago, tankers scheduled for delivery in 2012 and 2013 have gone up by 5.8 and 3.8 million DWT respectively.
The active fleet (+10,000 DWT) has grown by 3.0% since the turn of the year, caused by deliveries of 26.1 million DWT offset by tonnage removed for conversions/scrapping amounting to 11.4 million DWT. Last year a total of 19.5 million DWT was converted/demolished; this year is on course for the same level of exits from the tanker fleet.
Container Shipping:
Demand: Container ships are the segment with the relatively highest activity in the second-hand market in 2010. Bulkers may still be king in second-hand markets in terms of number of deals and value of the deals, but containership are on course for a new all-time high in term of number of deals and in traded TEUs. Naturally the value is bound to fall short of previous highs as we are still in reach of historically low levels for second-hand values. It is interesting to note that the average size of the sold vessels is equal to the record of 2,300 TEU from 2006, but the prices are no less than 40% lower. When comparing the same sizes with the prices of last year, values are up from the rock-bottom levels of 2009.
Outlook: Peak season is arriving and while the ships seems to be ready and enough in numbers, the lack of boxes being at the right place at the right time could cause some challenges for the liner companies as well as for the shippers. But it could also provide a floor under the freight rates if box-supply remains tight - as it has been during the last months. Lately some of the reactivated vessels have performed repositioning of boxes as their first task of re-employment. This should help in smoothing out the imbalance established over the last year.
Source: BIMCO / Peter Sand
