SIW1107Pete Seeger, who died this week, knew how to get his message across. His well-known Where Have All The Flowers Gone topped the pop charts and was one of the New Statesman’s top 20 political songs. Its lyrical style softens the theme that human beings never really learn, but in the end it doesn’t matter much. Words with a familiar ring for shipping folk.

No Hammer? Try a Steel Box

The shipping industry doesn’t have a folk singer, but if it did, he could write a shanty about the disappearing bulkers. It’s a story which raises questions about what we are up to. These basic steel boxes crawled into the 2000s on their knees after a couple of gloomy years in 1998/9. Their gloom was reflected in deliveries, which averaged only 14.5m dwt p.a. between 1998 and 2002 (see graph).

Too Many “Little Boxes”?

Then China got busy, the 2003-8 boom started and bulker deliveries surged 50% to 21.7m dwt p.a. The financial crisis put an end to booming freight, but deliveries trebled to 76.8m dwt p.a. 2009-13. Two thirds of the tonnage delivered since 1998 has hit the market in the last 5 years. Supply has grown more than twice as fast as demand, from 417m to 722m dwt. But few bulkers are laid up. So where are they?

Unlike the 1980s, owners are keeping their ships moving. Slower speeds, waiting, multi-porting, and dead freight have soaked up deliveries, opening the way for market spikes, driven by cargo fluctuations at major loading areas. A shipping network creeping round the world at 11 knots is harder to tap for quick tonnage than a pool of laid up ships, as the Capesize market has discovered.
Turn! Turn! Turn! – Please

But the capacity to go faster is there and as rates rise, so will the available supply. For example a Panamax bulker operating at 11 knots might need around $21,000/day to cover costs – say $13,000/day for the ship and $8,000/day for bunkers. If, however, rates move up to around $30,000/day, that might be enough to pay for bunkers operating at 14 knots. Of course the owner could keep on slow steaming and pocket the extra cash, but in a tight market charters and competitors would soon put a stop to that.

So spotting the turning point depends on whether all the bulkers have gone for good, locked in to permanent slow steaming. Investors who ordered 80m dwt of bulkers in 2013, obviously think much of the capacity has gone for good and so must analysts predicting $60,000/day this year.

We Shall Overcome

So there you have it. Bulkers are ferrying their cargo around the world at snail’s pace, and helping their bank balances whilst saving the planet with a downsized carbon footprint (maybe half what it used to be?). But economics and history say speed can still crawl out of the woodwork – all it needs is the right amount of cash. So the good news is there might be higher rates ahead, or it could just mean that most of it will go on bunkers. Well, that’s life. Have a nice day.