Archives for category: Dry Cargo

By the late 1800s, the shipping industry had been transformed by the introduction of steam power and iron ships. Coal and grain were two of the most important cargoes, alongside timber, sugar, cotton and tea. While technology, the sheer scale of the business, and the global cargo mix, have of course all changed since then, dry bulk cargoes have retained a position at the heart of global seaborne trade.

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Bulkcarrier investors are generally an optimistic lot, with little time for pessimistic analysts. They know that however gloomy the forecasts, some time they will make a nice profit. After all, the ships last 30 years, especially small bulkers and a lot can happen in that time. But occasionally even they get gloomy and that seems to have happened today.

Bottom Fishing For A Bonus

It’s easy to see why. The Baltic Dry Index has hit all-time lows and Capesizes, which were supposed to be gold-plated investments in a world dominated by China, are looking decidedly tarnished. Nearly new ships have been chartering for well under $10,000/day and it’s been going on for a long time. These moments of deep negative sentiment are often a good time to invest, especially if finance is in short supply. It happened in 1986 when a new Panamax bulker cost $13.5m and a 5 year old ship cost $6m, and again in 1999 when new Panamax prices slumped below $20m and a 5 year old ship was sold for $13.5m. 10 years later these ships became profitable beyond the dreams of even the most optimistic investors, grossing over $100m in earnings and capital gains. Could this be another magic moment?

Gut-Based Gambling

Deep negative sentiment generally occurs when everything goes wrong at the same time. In the 1980s the world economy went into deep recession after the second oil crisis. Surplus bulker capacity was topped up by heavy deliveries, which the closure of shipyards did little to neutralise. Banks were too preoccupied with defaulting clients to consider new loans. In 1997-99 the Asia crisis, which coincided with a surge of deliveries after the brief 1995 bulker boom, left investors wondering if they would ever see light at the end of the tunnel. China was not even on the radar.

Today’s bulker outlook is also gloomy. The global steel industry is under immense pressure, and an increasing focus on clean energy is souring the outlook for coal consumption. Chinese dry bulk imports have dropped, and prospects for Indian coal imports have also worsened. So after a decade when seaborne dry bulk grew at nearly 200mt a year, in 2015 trade is set to decline. Meanwhile the surplus is being topped up by deliveries.

Searching For Silver

But there are a few positives. Cheap oil at $40/bbl is putting money in everyone’s pocket. Bulker ordering has slumped to 13m dwt this year; demolition is up 70%; fleet growth is down to 3%; and China seems keen on its ‘One Belt, One Road’ strategy, which could add to trade.

The Magic Number?

So there you have it. But there is one other interesting factor to consider. Somehow the tanker sector is generating very impressive earnings in a market which, on the basis of fundamental analysis, is also carrying surplus capacity. Slow steaming can help, and maybe that’s good advice. This may not be a magic moment like 1999, but, take it easy, keep your eyes open and maybe there’s a silver lining somewhere out there for the right ship. Have a nice day.

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Each year, in the first week of November, we invite readers of the Shipping Intelligence Weekly to predict the value of the ClarkSea Index one year ahead. The competition entries are always interesting, and give us an idea of what the shipping industry’s expectations of the market really are. However, as everyone knows, it’s hard to get it right and the competition can only have one winner…

Stick Or Twist?

In 2013, it felt like there was some consensus amongst industry players that the bottom of the cycle might have been reached and that markets would start to take a turn for the better. Shipowners contracted 176.9m dwt of new ships, the highest level since 2008, reflective of a more optimistic outlook than previously. The ClarkSea Index represents a weighted average of tanker, bulker, boxship and gas carrier earnings, and it is interesting to see if the entries in our annual competition supported this optimism.

At a first glance it seems that competition entrants had a cautiously positive outlook, with the average prediction of the early November 2014 index value at $14,553/day, well above the $10,843/day average prediction for November 2013 from last year’s competition. The average forecast was also far above the actual full year 2013 ClarkSea Index average of $10,263/day, and the value at the start of November 2013 of $10,767/day.

Hard Times?

Looking at 2014 to date, this optimism may have been slightly misplaced. The ClarkSea Index overall has not performed particularly well since November 2013, averaging just $11,625/day. Crude tanker earnings have improved but have been spiky, while product tanker earnings have generally remained under pressure. Bulker earnings have seen limited upside aside from some helpful spikes in the Capesize market. Gas carriers have been the star performers, with significant earnings gains, but containership earnings have remained in the doldrums.

During most of 2014 to date, the index has stood below the $12,000/day mark. Across the 45 weeks in the year to date, the ClarkSea Index only exceeded the average competition prediction in three of them. However, last week, on 7th November 2014, the ClarkSea Index rose to $15,139/day, helped by more positive bulker and tanker markets and up 41% year-on-year, if still well below the 2004-13 historical average of $20,795/day.

Pipped At The Post?

So, although index levels this year have generally remained low, the recent rise has meant that the actual value on 7th November was higher than the majority of competition entries. Around 25% of the ‘forecasts’ stood in the $13-14,000/day range; maybe people were right to be optimistic after all? However, having dipped below the $10,000/day mark in September, the index has only really improved over the last month or so.

So, is the glass half empty or half full? Depending on your viewpoint, the cautious optimism has either been misplaced or justified. Whatever the case, this year’s winner is Mr Peter Bekkeston of Klaveness Chartering with a forecast of $15,123/day. Have a nice day, Peter; your champagne is on its way.

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