Thursday, June 2, 2016

Pessimistic Report on Dry Bulk Shipping Market as Ocean Freight Carriers Suffer

Steps to Balance Overall Fleet Tonnage Required to Reinvigorate Trade
Shipping News Feature
WORLDWIDE – BIMCO has released its latest market analysis on what the dry bulk sector must do to return to profitability, suggesting that the 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. In the new market analysis report, titled the ‘Road to Recovery’, BIMCO found that the dry bulk sector cannot merely rely on demand growth to rescue it from the current critical situation in which many companies find themselves and sets out a series of scenarios to find the best fix for an industry struggling to cope.

BIMCO has developed a new analysis model designed to highlight the actions needed for the troubled shipping markets to recover and to be able to track the progress of the recovery. Using this model, BIMCO has developed a ‘zero supply side growth’ scenario for recovery of the dry bulk market. This scenario requires shipowners to neutralise the delivery of new ships every year by scrapping an equal amount of capacity from the existing fleet.

Commenting on the new analysis BIMCO President Philippe Louis-Dreyfus, described the dry bulk market as being in a terrible condition, adding:

“We cannot expect to be helped by growth in demand, the recovery of the market is wholly and exclusively in the hands of us, the shipowners. The medicine is not going to be easy to take, zero supply growth has been achieved only three times in recent history, in 1986, 1987 and 1998. The task ahead of us is huge and must be sustained year after year.”

Louis-Dreyfus also insists that scrapping older vessels is not only a good way forward to a better market, it is also an essential measure in favour of the environment and, last but not least, the safety of crews. Without managing numbers of ships available shipowners are likely to pursue a policy whereby they continue to effectively operate at a loss simply to keep their vessels occupied whilst they hope other companies fail for lack of trade. Even if this scenario comes about it simply means a glut of under-priced vessels arriving on the market rather than a significant reduction of overall global capacity.

BIMCO takes the view that 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 cash-flow to sustain it through future downturns.

Consolidation, as seen in the container shipping industry, 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 thus be a game changer, not only for dry bulk shipowners, but also the broader industry.

The first piece of analysis using this model focuses on the dry bulk sector, but BIMCO says it will later also use the model to analyse fundamental changes in other shipping markets. Container carriage is of course also very much under the spotlight and last October BIMCO made equally gloomy comments about the rapidly falling rates present in the box traffic market, a situation in which very little has subsequently changed.