Archives for posts with tag: dry bulk

Bulkcarrier owners could be forgiven for feeling just a little bit dizzy at the moment. The unprecedented growth in China’s steel industry over the last decade has for years provided an adrenaline-infused experience in dry bulk trade. But with both Chinese steel production and iron ore imports registering a decline in the first half of 2015, is the playtime over?

Down To Earth With A Bump

It’s no surprise that the recent wobbles in China’s economy have been leaving dry bulk’s thrill-seekers with a nasty headache. Construction activity has slowed, and total steel use dropped by 5% y-o-y in the first five months of the year. Steel production has declined by a less severe 1% y-o-y, but this is still an unpleasant change of direction for those accustomed to average output growth of more than 10% per annum over the last ten years.

Round The Roundabout Again

Yet these worries over China’s steel industry are not new. According to China’s annual estimates, steel output growth in 2014 slowed to 1%, from 14% in 2013. However, iron ore imports increased in 2014 by a massive 15% to 914mt. Almost heroic growth in Australian iron ore production flooded the global iron ore market with cheap ore, displacing some higher-cost domestic Chinese ore production. Ambitious production expansion in Australia is still underway, and exports from the country are up 9% so far this year, but total Chinese seaborne imports are down 1%. So what has changed?

Balance Shifts On The See-Saw

This year seems to have proved a tipping point in the iron ore market. Weak Chinese demand is contributing to record low iron ore prices (dipping below $50/tonne in April). In 2014, the rapid drop in prices boosted China’s overall import demand, but no such positive effect is visible this year. Instead, the extent of the price drop has squeezed out a number of small iron ore miners across the world, and Chinese imports from many smaller suppliers have been depressed this year. And while Chinese miners have clearly reduced domestic production, there are questions over how much more capacity (particularly state-owned) will be cut.

Swings In Need Of A Push?

The unsettling thought for the dry bulk market is that the excitement of the Chinese ride could be coming to an end. Despite the price drop, most major ore miners are forging ahead with expansion plans. If China’s steel usage has peaked, miners will be fighting for market share in a shrinking demand arena. And if Chinese ore output proves resilient to price pressures, this could leave those expecting a resumption of firm iron ore trade growth with only a severe case of vertigo.

While global growth in low-cost ore production could still boost imports later this year, there is certainly no longer a consensus that China’s steel industry has considerable long-term growth potential. Faced with this ominous scenario, bulker owners will be hoping that the current weakness in China’s iron ore imports is only a temporary downward swing. Time will tell, but for some the playground which once spurred great excitement might be starting to lose its appeal.



In the last four months dry bulk orders have fallen to 0.4m dwt per month, the lowest level since the 1990s. This is a massive 98% reduction from the 23m dwt peak in orders in December 2007, and probably the sharpest decline in recent decades. Not really a surprise in a market where Capesize bulkers are struggling to earn $4,000/day, but a timely relief to investors with ships on the orderbook.

Investment Fever

This investment collapse marks the end of a remarkable phase of bulkcarrier history. During the last decade, 724m dwt of new bulkers have been ordered, around 70m dwt/year. Just to put that in perspective, during the previous decade ordering averaged about 20m dwt/year.

The 5 years from 1996 to 2001 were disappointing to investors, who ordered only 1.2m dwt/month. At the time this was seen as normal, and included a spike in 1999, when investors snapped up Panamax bulkers for $19-$22m. These were probably the most profitable bulkers ordered in the industry’s post-war history. Upon delivery they sailed straight into the bulk shipping boom. Proof that “crazy investors” are not always crazy.

Softly, Softly

The next phase from 2002 to November 2006 was quite restrained, considering the rise in freight rates. Ordering edged up, averaging 2.8m dwt/month. As earnings eased in 2006, many assumed the boom was over, but they were wrong and what happened next was unprecedented. As earnings escalated owners threw caution to the wind, and the big bulker cash machine drew investors from outside shipping. In December 2007, ordering peaked at 23m dwt, and in 2007 to 2014, investment averaged 6.8m dwt/month (81m dwt/year), an astonishing number for a period mostly in global recession.

Carry On Investing

Despite the onset of the global downturn in 2008, two more bulker investment spikes followed in 2010 and 2013. With surplus bulker capacity, and China’s growth engine easing off, it’s hard to explain this investment on strictly economic grounds. Easier, perhaps, to understand the change in expectations. The memory of spectacular bulker earnings had been fresh in the minds of some investors, but a decade later and that dream is fading.

The collapse in bulkcarrier investment is a particular problem for shipyards. Many builders in China and Japan surfed the wave of bulkcarrier investment and bulkers still account for around half of tonnage on order globally. In today’s sluggish world economy, that is going to be a difficult gap to fill. The fact that bulker prices are around 5% down this year, and ordering has virtually stopped tells its own story.

Big Bulker Investment Boom

So there you have it. The spectacular run of dry bulk investment which kicked off in early 2003 has finally ended. Then China’s imports were growing at 27% a year, a big difference from the 3% growth in 2014. This is disappointing, but as serious shipping investors know, in good markets and bad, there’s still an awful lot of cargo that has to be moved around the world – it’s just a matter of who moves it. Have a nice day.


According to Warren Buffett, the best way to become rich is to “close the doors. Be fearful when others are greedy. Be greedy when others are fearful”. Since dry bulk investors seem to be having a fearful fit of nerves at the moment, maybe it’s a good time to start getting greedy. But what exactly does that mean for shipping?

Two Tier Strategies

Actually this pithy advice bundles up two investment strategies. One is not to let your judgement be swayed by sentiment, especially when the market is at an extreme high or low. The other is to be contrarian. This is good advice for shipping, but it leaves investors with the problem of deciding what constitutes “being greedy”.

Bulkers Back To Basics

Recent secondhand price data provides a neat illustration of the issues. The Bulkcarrier Secondhand Price Index, based at 100 in January 2000, has recently dipped and is now almost back to where it was 15 years ago. In the meantime prices have been through a heroic cycle. After staying at around 100 points for the first three years, the price index took off, climbing to 500 points in 2008, before collapsing in 2009. After a brief recovery in 2010 the index is now back around 100. So investors who were not greedy and sold in 2007-08 have a nice warm feeling. But was selling really the right strategy? Let’s dig a bit deeper.

Patience Is Golden

Take a new Panamax bulker delivered in 2000 as an example. The inset table shows how things worked out for “non-sellers”. The ship cost $25.5m, and at 15 years old was worth $9m in March 2015, so the ship depreciated by $16.5m. But in 2000-15, assuming the ship trades 330 days a year, it would have made around $96m trading spot (boosted by strong earnings in 2007-08). Deducting depreciation and rough operating expenses ($32m at around $5-6,500/day) leaves net earnings of around $48m, generated over 15.25 years. That is $3.2m a year. On an original investment of $25.5m that is roughly a return of 12% per annum.

Safe As Ships?

That’s not exactly a top-end equity return, and punters might wonder if all that volatility is only worth 12%? But the net cash flow (revenue less OPEX) shows that in this example, if the ship was funded with equity and well insured, there was fairly low risk. There were a few months when earnings could probably not cover costs, but a modest working capital would cover these (although for some longer periods, net cash flow was tight). And of course it’s a very different story if the ship was funded with debt (another sort of greed?).

The Right Perspective

So there you have it. The shipping market looks unbelievably volatile and exciting. But if you “close the door”, focusing only on the numbers, for “greed” you could read “leverage”. With great patience; decent management; and lots of equity, shipping is a business where you can, if the timing is right, get a fair commercial return and an even better night’s sleep. Or you can get greedy, it’s your choice. Have a nice day.


Next week sees the 100th anniversary of the opening of the Panama Canal, which has played a significant role in the history of shipping and seaborne trade. Whole classes of ships have been defined by their ability (or not) to transit the canal. Today, there are still almost 900 containerships in the fleet referred to as ‘Panamax’ and another 3,000 or so capable of passing through the current locks.

What’s The Plan?

The completion of the new Panama Canal locks remains behind schedule, with the opening date now pushed back to 2016. Despite this, the potential impact remains a hot topic. The project was partly driven by the desire to capture greater revenues from the container sector by enticing larger boxships and increased volumes of trade through the canal. The most relevant trade lane in volume terms (by far) is that from Asia to the US East Coast, an estimated 3.6m TEU in 2013 (though an increasing part of this is actually being moved via the Suez Canal).

How Big?

The new canal dimensions will dramatically alter the number of boxships that can potentially transit. As the graph shows, at the start of 2H14, 3,833 of the boxships in the fleet (75%) could transit the current Panama locks (the Panamaxes up to around 5,100 TEU, about 140 of which are actually deployed on Asia-USEC services, and other smaller vessels). An additional 1,111 ships in the fleet (22%) will be able to transit the new canal. On order, 355 of 454 units (78%) will be able to transit the new canal. In terms of ‘cut off point’, most vessels of up to and around 13,000 TEU will be able to transit.

With the vast majority of the world’s boxships able to transit the new canal, how far might upsizing of services via Panama go? Larger ships will offer potentially lower costs per box for today’s cargo, but might also encourage cargo switching from USWC to USEC services (about two-thirds of Asia-US cargo today arrives via the west but a significant share is actually destined for the eastern US).

Switch Up Or Not?

Firstly, the answer may lie with the ports. In order to receive the very largest ships capable of transiting the new locks, there is still a significant amount of infrastructure work to be completed at the USEC ports. Compounded by other issues that carriers face at US ports, the consensus seems to be that carriers may upsize services to the USEC via Panama to around 9-10k TEU first before going further. Secondly, in terms of cargo switching, the move from USWC to USEC is not as clear as it may seem. Logistics supply chains put in place by major retailers, with distribution centres based in the US interior, are likely to be fairly sticky and not instantly so sensitive to unit cost savings in the shipping part of the chain (which may or may not cover the cost of much additional inland transportation).

So, the majority of containerships will be able to transit the new Panama locks when they open. However, the initial impact of the new dimensions on container shipping may not be as obvious or instant as it seems. Project delays or not, it is likely to take some time for the full extent of the impact to be felt.


Last week, we looked at which countries occupy the leading positions in terms of the supply side of shipping: that is, who owns all the ships. This week we follow-up by looking at which countries contribute the most to the demand side of the industry. Which countries account for the largest portions of global demand for shipping? And which countries are punching above their weight?

Key Trade Players

In total, world seaborne trade is estimated to have reached just under 10 billion tonnes in 2013. Bulk cargo trades in dry bulks, liquid bulks and gases represented 85% of this total, or a massive 8.4 billion tonnes. Overall, world trade has grown at an average rate of 3.8% since 2000. The Graphs of the Week show which countries have contributed to this, and now have the largest shares of 2013 bulk trade by sea.

China Wins, Of Course…

It will come as no surprise to anyone that China is the country with the largest portion of overall seaborne bulk trade, with a 13% share of the total. China’s imports (a massive 1.8 billion tonnes) represented 23% of global imports in 2013, including nearly 800mt of iron ore, 286mt of crude and products and 308mt of coal. Of course, China has a much lower (2%) share of those commodities’ global exports. On the other hand, its containerised exports represent around 25% of global trade in TEU terms.

The ten countries shown on the graph account for just over 50% of the world’s seaborne imports and exports of bulk cargoes, meaning that, given that there are in excess of 250 countries globally, world bulk trade is quite consolidated around a relatively small number of countries. Indeed, the top three countries account for more than 25% of the total.

No EU countries feature in the top 10 countries, demonstrating the impact of the rise of developing Asia. Then again, if considered en bloc, the EU has 14% of world seaborne bulk trade: exceeding even China, although not by much.

Using their Chance?

So, what about those countries punching above their weight? Excluding island microstates, the country with the largest ratio of trade to population is Qatar, with 94 tonnes of trade per capita. Qatar is the world’s largest gas exporter, with 33% of world LNG trade and 16% share in LPG. Other countries high on this ranking include several other Gulf states, and the sparsely-populated raw materials export giant that is Australia. However, in 2nd place is Singapore, which imports more bulk cargoes than it exports, given its status as an oil refining hub. China is just 127th place for trade per capita, while India is 181st.

Overall, the graphs confirm the importance of a list of countries which will be well known to all involved in global shipping. At the heart of world trade are a group of big raw materials exporters, along with the consumption-driven states of the developed world, plus major developing economies. All four of the key BRIC developing countries feature on the graph. Many of the so-called VISTA countries feature in the next 20 countries not shown: could they soon begin to move up the table?


Changes in the composition of the world fleet are nothing new, and have been a recurring theme throughout the history of the shipping industry. The twenty-first century has been no exception. At the start of 2000 the world fleet totalled 788 million dwt, but today’s fleet and orderbook combined total more than 2.0 billion dwt, and alongside this expansion the make-up of the fleet has also continued to change.

Bulk Boom Bulge

Clarkson Research tracks the world fleet and orderbook of over 90,000 ships. The Graph of the Week shows the difference in each vessel sector’s share of the total fleet in terms of both vessel numbers and dwt capacity, comparing start 2000 to today’s fleet and orderbook combined. It comes as no surprise that the clearest gain in share belongs to the bulkcarrier sector. During the ordering boom of the mid-2000s bulkers were often the investors’ ship of choice, spurred on by ramped up earnings and dry bulk trade growth averaging 7% during the period 2003-07. On the basis of today’s fleet and orderbook, bulkers account for a 11% greater share of world fleet dwt than at start 2000, and a 4% larger share of fleet numbers.

The tanker fleet meanwhile has seen its share of the world fleet decline over the same period; the overall tanker fleet saw its share of dwt capacity fall by 8%. Although 317m dwt of tanker tonnage was ordered in the years 2003-08, activity in other sectors has seen the tanker tranche slim down. Crude oil trade growth this century has been limited to an average of 1% per annum, although more positive growth in oil products volumes (5% per annum on average) has driven requirement for product tankers, helping maintain the tanker share of vessel numbers.

Liner Alignment

On the liner side, the containership sector has seen a significant growth in its share of tonnage. Robust trade volume growth of an average of 8% per annum this century has ensured a requirement for rapid growth in capacity. However, that has not been the only factor. In capacity terms container tonnage has also benefitted over the period from the increasing containerization of general cargo trade. Whilst the containership share of global tonnage has increased from 8% to 13%, the shares constituted by general cargo ships, MPPs, ro-ros and reefers have all decreased in dwt and number terms.

What’s Next?

The world fleet product mix continues to evolve. The consensus view seems to be that the more rapid growth in requirement for more specialised tonnage will see the share accounted for by, for example, gas, container and offshore units expand. In the period shown here, the offshore sector, led by the numerically strong OSV fleet, has already increased its vessel number share by almost 3%.

However ‘wildcards’ also come into play(few foresaw boxships as large as 18,000 TEU back in 2000) and ordering patterns are determined by a range of factors not just demand fundamentals. If prices look attractive, shipping investors often turn back to the sectors in which they are comfortable, and the composition of the fleet doesn’t always evolve as it seems it logically should. So, for the latest trends, watch this space. Have a nice day.


SIW1115Big ships get lots of attention. How often do you read about the Valemaxes, Capesizes and VLCCs? Of course the big bulk trades are massively important and the five major bulks totalled 2.8 bt of cargo last year. But they’re not the whole story. The minor bulks are not so minor any more. This year they will reach 1.5 bt of small parcels that tie up lots of ships – probably about 200 m dwt.

Minor Bulk, Major Cargo

This seething mass of trades is the bedrock of the “handy bulker” business, but for analysts they are challenging. Clarkson Research tracks more than 30 “minor bulk” commodities, each a micro-business with its own drivers, trading partners and transport requirements. The smallest is less than 10 mt pa and the biggest nearly 300 mt. The best way to deal with so many commodities is to bundle them into groups that can be analysed together.

The “Six Minor Bulks”

The six minor bulk commodity groups shown in the chart are agri-bulks; fertilisers; forest products; iron & steel; minor ores; and other minerals. This wide-ranging mix of trades displays good and bad points. On the positive side, the average volume trend since 1990 has been upwards. In the period 1990-2003 minor bulk trade grew at an average of 3% per annum, and this has risen to 4% in the years since then. Not so good was the volatility, growth swinging between 6-8% pa (for example 1994, 2003-4, 2006-7 and 2011) and zero or negative growth (1991, 1996, 1998, 2001 and 2008-09).

Cargo Diversity

There has also been a good deal of diversity in the growth rates of the individual commodities. Across the period in question agribulks and fertilisers, two solid trades of around 300 mt combined, grew at 3% per annum, which fits in with their agricultural base. But forest products, another 200 mt trade, have been quite flat, averaging only 0.9% growth since 1990. Iron and steel, which includes products, scrap, pig iron and DRI reached 426 mt in 2013. But trade growth has averaged only 2.8% pa and the trend is edging downwards. In contrast the minor ores, which include nickel, manganese and copper, are the stars of minor bulk. They have averaged 9.2% pa growth since 1990, accelerating to 15.7% in the last decade, backed by Chinese demand. Finally the other minerals include lignite, anthracite, cement, sulphur, salt, petcoke, limestone and lots of very small trades. Together they totalled almost 500 mt of cargo in 2013 – a challenge for analysts, but good business for small bulkers.

Real Life Shipping

So there you have it. Minor bulks don’t hit the headlines, but they provide business for an enormous range of shipowners at the smaller end of the dry market. Some are big and highly organised corporates, others are companies with just a few ships. And with each decade the trade gets bigger and more complex, which, on the whole, is good news for shipowners who like a challenge but not media attention. Have a nice day.