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Dry bulk fleet growth and utilisation forecasts offer positive insights

Published by , Editorial Assistant
Dry Bulk,

Sevi Katemoglou, EastGate Shipping Inc. writes: It is a tricky venture for one to gauge the full impact of the coronavirus crisis on the dry bulk shipping market. However, fleet growth and fleet utilisation projections offer some positive insights.

Deliveries delayed

1H20 was expected to be heavy on deliveries: we had braced ourselves for the highest gross deliveries within six months since the first half of 2016. However, the virus had other plans. Reduced labour force caused construction delays in newbuilding vessels. Many shipyards in China shut down, with some even declaring force majeure.

Other yards in the region were also affected as they do too use parts from China which they did not have access to due to the lockdown. This means that we have avoided to some extent a significant influx of fresh tonnage supply during the first months of 2020 and we will likely see these deliveries scatter during the balance of the year.

Aversion to newbuilding contracting

What is clear is the aversion to newbuilding contracting. Only 1.6 million bulk carriers’ dwt was ordered during 1Q20. This number becomes more interesting when compared to the 6.9 million dwt of 1Q19. The steep drop of newbuild orders can be attributed to a number of factors.

Indicatively, the already high fleet growth we saw last year and the overall market uncertainty over the hot topics of coronavirus, future regulations and technological challenges. Liquidity issues that potential buyers might face in the aftermath of the COVID-19 pandemic also suggest that newbuilding activity shall decline. The current low orderbook and the approximate two years needed for a new vessel to be built, set the scene for a long fleet expansionary cycle being ahead of us.

Light at the end of the tunnel

Recent forecasts point to a sub 2% global GDP growth in 2020, which sadly equates the one of 2008 when Lehman Brothers collapsed. Further to that, there is a debate on the recovery projections as to whether we will witness a sharp V-shaped or a more ‘stretched’ U-or L-shaped recovery. Assuming the virus runs its course relatively fast, the prevailing sentiment for the dry bulk market remains that there will be a rebound in the second half of the year. This is largely driven by expectations for a sizeable stimulus package in China and measures of policy easing and fiscal support adopted worldwide to cushion the economic blow.

Indeed, there is truth to the statement that global markets show confidence in China’s and the world’s recovery. This could imply a future with increased demand for commodities and higher rates for vessels, being the vehicles that transport them. Despite the short-term uncertainties in regard to the ongoing pandemic and the associated supply chain disruptions, the macro picture for the shipping market hasn’t changed much.

As the year progresses, fleet growth is expected to abate and it is likely demand to outpace supply. Forecast models indicate that the dry bulk fleet utilisation rate will improve considerably from the estimated 79% of 2020 up to 88% by 2022. The upward trend of fleet utilisation is expected to continue over the next three to five years, as a result of a net fleet growth decline and a concurrent increase in demand. This positive dynamic should be mirrored in bulk carriers’ earnings as well as asset values and remain so by mid-decade.

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