Looking at the 2015 crash of the dry bulk sector it seems that a glut of ships coming out of shipyards was the main contributing factor. What is worrying for 2016 is that the order book for new ships looks quite large and market conditions do not indicate any recovery of trade activity in the near future.
Changes in Chinese energy production were largely ignored by the dry bulk sector. In the last couple of years, China has moved its coal-based power stations inland and farther away from large cities due to pollution problems. This influenced an increased reliance on domestic coal and overland imports and indirectly influenced a slowdown in dry bulk commodities in China last year. Calls for the consolidation of China’s steel making industry capacity is a new cause for concern in 2016.
The order book for new ship deliveries remains a problem for dry bulk shipping at the moment, particularly when there is no potential for growth or recovery in trade activity along the major routes. The current scheduled order book for 2016 stands at about 83 million dwt, about 16 percent of total fleet size. There are reasons to believe that a certain percentage of the current order book is going to be subject to cancellation and delivery reschedule.
The dry bulk sector is far from recovery if we look at the basic assumptions of supply and demand. Although dry bulk is a complicated trade and very much influenced by regulations, national interests, and financial market developments, there seems to be almost no reason to believe that there will be a significant positive move in freight rates.
The majority of scheduled deliveries for 2016 are scheduled for the first two quarters and this will continue to push freight rates downwards. A welcome relief to the market is expected to come from the intensification in demolition activity that started very strong in 2016.
Dalibor Gogic is principal analyst at IHS Maritime and Trade.