15-06-2016

“Dry Bulk Market – Emerging Trends” Mr. Ashok Jain, Managing Director, DIAMOND SHIPBROKERS PVT. LTD

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As we all know that the Dry Bulk market is going through a hard time and the Shipping industry has always been cyclical, there are some emerging trends and developments that needs the industry’s attention. Mr. Ashok Jain, Managing Director, DIAMOND SHIPBROKERS PVT.LTD talks about such developments and much more in his talk on “Dry Bulk Market – Emerging Trends” in The Dry Bulk Cargo Summit 2016.

He starts off by laying down some significant observations about the current situation and similar historical occurrences, “I can see the best of practitioners and the stalwarts here, I would just like to make some observations about some emerging trends I see. The Dry Bulk market has hit a terrible storm and it is at its historical low. If we look at the Baltic exchange dry index for the last 16 years (2001-2016), the volatility is very clear here.” This year, the average is 452 which is one of the lowest in history, we have passed seven to eight years in this situation and we still don’t see the light.

Talking about the reason as to why many investors got attracted and stressing on the weighted average earnings and the “China factor” he said,

“Weighted Average earnings, for all types of ships is varied from 44,000 to 4000 this year. Looking at the earnings of 44,000 a day I think many investors have gotten attracted to Shipping. The shipyards’ capacity expanded and the single factor responsible for this growth was the China factor. The trade growth consistently grew over the fleet growth in the first five to six years from 2001 onwards particularly when China became a member of the World Trade Organization.”

He also pointed out that there is a structural overcapacity, it is not a cyclical overcapacity which happens over the years but this time, it was extraordinary, the ship supply was far exceeding the demand.

Moving on the role of Bulk Carriers Second Hand Prices, the fall in the prices after early 2008 caught the fancy of outside investors, he addressed this topic saying,

“The Chinese economy has influenced shipping demand the most and the recent slowdown has caused a global commodity bust. The vessel capacity growth has far outstripped aggregate demand causing historically lowest freight rates. Let’s see what trends have emerged. I think what we see in this oversupplied market is that the dry cargo ship has become a commodity, super profits during boom time and subsequent volatility attracted new investors like financial institutions, PE funds, Hedge funds, family businesses and many asset players. Easy monitory policies and financial stimulus post global financial crisis fueled the ship supply further.  The global shipbuilding capacity has expanded, they have been able to sell eco type ships in the era higher bunker prices and they have used this idea very well and it has been bought by many ship owners.”

Innovations in ship types and technology is a new emerging trend which focuses on improving productivity and reducing operating costs with vessels like Ultramax and Post Panamax ships and bigger sized ships such as VLOCs are becoming popular with the ship owners.

Another trend he talked about was in regards to Valemax ships, “The Valemax might disrupt the Dry Bulk market. We already have 30 ships and another 35 VLOCs have been ordered, these 65 ships can carry 50% of iron ore exports of Brazil and numerous capesize vessels will lose business because of this and Brazil may have an edge over Australia in years to come because currently the freight market is very low.”

Slowing down fleet growth, fortunately, ordering remains subdued now and scrapping continues at firm levels and increasing cancellation of orders and slippage.

The bulk carrier demolition is increasing, as Mr. Ashok Jain says, “Because the interest rates are low, the finance is available, even the banks don’t want to take any extreme actions and ships are continuing. However, this year when the fright earnings have become very low, the demolitions have started in a way now particularly and this year could be the best year for demolition, I think it will beat 2012 as well.”

While in the supply side, we have an oversupplied market but because of slow ordering now it is coming towards balance. At the same time the demand for strategic commodities is also weakening due to government policies and environment regulations. The global seaborne coal trade will drop by 2% this year to a five-year low. The Chinese thermal coal import will drop by 12% this year, India’s coal imports are dropping, last financial year it dropped by 15% to 182 million tons as he pointed out in his talk.

Bringing light to the role of the multiplier effect, “Another matter of concern for the demand side is the multiplier effect, its less than 1 now. 1% GDP growth is not giving 1% growth in seaborne trade and this is the recent phenomenon. If we see, prior to 2008 global trade rose by an average of 7% faster than the global GDP growth because countries such as China were booming and Western businesses were creating a web of cross border supply chains.”

Taking into account the World Seaborne Dry Bulk trade, he added, “Although it is declining, fortunately It is in the positive territory. But what we see in the next two years’ time, I think we’ll reach around 2018 where the fleet growth will be negative and seaborne trade will become positive and that will be the year when the market will turn.”

Other noticeable developments are that we have returned to moderate volatility and that the ship operators control the market and not the traditional ship owners. There is no scope for super profits, there is no China factor to boost seaborne trade. Also, ship operators are efficient as their focus is only on commercial, they have specialization sector wise and trade wise and all tonnage opening and loading area are at their disposal.

He concluded with some vital points for the audience to take away from his talk:

  • Dry Bulk market has transformed in the last one decade, new investors have entered the market.
  • The ships are young, fuel efficient and productive but turned a “Commodity” in an over supplied market.
  • The commercial management of ships is shifting from Head owners to operators and commercial pools.
  • In view of the sluggish growth in sea borne trade, a restraint in new building orders and continued demolition only will ensure balance of demand and supply and fair return on investment.

Source: Kavita Mishra / TST Newsdesk 

 

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