Dry Bulk in 2018

توسطAli Karim 1 سالپیش

What may happen in the dry bulk market in 2018

Baltic Dry Index (2009-2018) By Qunadl

The question is very hard to answer, there are many contradicting views over this subject. There may be few industries that are exposed to such volatility and risk as the shipping industry. The picks and troughs of this market is not something that everyone could predict and invest in.

What follows are mainly the statistics received from various sources regarding the shipping market and author’s own views based on these information.

Martin Stopford (2007) believes that shipping market goes through different cycles which length has been reducing since the early 20th century. These cycles mainly take about 7 to 9 years and consist of a main pick which then leads to a main trough. No one can definitely say when a cycle starts or ends. The second-to-last cycle (22) started in 2003. Its pick continued till 2007 when the market was hit by the storm of financial crisis due to mismanagement of subprime mortgage market. The 22nd cycle trough started from 2008 and from author’s point of view the market is still in trough which has taken 10 years. Of course it has had its booms throughout the years . If we take these quite little booms and troughs into consider, we can say that the 23rd cycle started in 2009with the boom taking from 2009 to 2011 and its trough from 2011 to 2013. The 24th cycle then started with the pick of 2013-2015 and ended with the trough of 2015 to 2016. Now, however we are in the 25th cycle which started with the pick of late 2016 which will be continuing.

Therefore, if we take the current situation as in the deep trough of post financial crisis, considering the looks of supply and demand of the market it does not to seem that we are not going to have a big boom (late 2013) or a deep trough (early 2016) in 2018. Nothing special will happen.


In response to the proposition of taking the little booms and troughs as cycles, it seems that the market is still adjusting itself with the down fall of at least 9000 points in the BDI with a few bounces up and down the market, however we are still in a deep trough and it doesn’t seem that we are going to have a shocking year of boom ahead.

Martin Stopford (2007) claims that Martin Stopford (2007) claims that the supply and demand sides of the shipping equation are composited of the following variables which impact the market based on their influence.



World Fleet

World Economy

Fleet Productivity

Seaborne Commodity Trades

Shipbuilding Activity

Average Haul


Random Shocks

Freight Revenue

Transport Costs

So, in order that we have a clear judgment of the supply and demand in the market, we have picked World Fleet, Scrapping and Freight Revenues from Supply side and Seaborne Trade, Average Haul and World Economy from Demand Side.in the next section, we are going to present the data for these variables.

World Fleet (2004-2018) DWT in Thousands
World Seaborne Trade in Ton-Miles

Based on above information we shall have a look at the percentage of growth in world seaborne trade (Demand) and world fleet (Supply)

Now lets add the BDI which  for owners  accounts for the freight revenues and transport costs for the shippers.

Starting from 2004 which shall lead to the biggest surge in the history of BDI and shipping industry, demand increased by 8 percent, however due to the time lag between order and delivery of the newbuilding ships, the supply side increased only by 4 percent and BDI stood at 25 percent growth (from 4500 to 6000). 4 years later at the pick of the history of dry bulk industry rates rose to 11000. However, by the time global financial crisis hit the bulk trade, everything fell apart very fast. As you can see in below figure by IMF, GDP growth turned negative in mid 2008.

In mid 2008, when freight rates fell from $ 11000 per day to $ 800, overall market sentiments was so down that it made some owners cancel their new building orders, some delayed their deliveries by couple of years, many ships were laid up and many others were sold on distress sales and even some 15 year-olds sold to scrapping yards. cash flow was so low that many companies went bankrupt.

Shipping Companies were preparing themselves for a bright and prosperous when they faced one of the history’s worst recessions. They were financing second hand purchases and new buildings by receiving huge loans from banks and issuing bonds and stocks. The recession, however turned the future upside down for these companies. They were left with the lowest rate of earnings that could barely cover their operating expenses, let alone their capital costs.

The earnings improved in the late 2009 and early 2010 but fell again until late 2013 and early 2014. The price of some major bulk commodities such as Iron Ore fell in 2015 and consequently the freight rates once again fell shaprly. Although, 2017 was a much better year since 2014, supply side of the equation was totally controlled by the shipping companies. Most of the share of deliveries belonged to Capesizes.

According to the UNCTAD prediction of increased deadweight in 2018, it seems that it will be on its all time low (%0.25). Although if the increased deadweight goes as planned, it will not make much difference since Demand also is not going to increase by much. However if global economy improves far better than expected in 2018, given the low rate of deliveries in supply side we expect a higher boom than in 2017. Considering these information and the fact that the standard deviation of freight rates has tended to calm down and not fluctuate by much in the last 4 years (as per below figure), the BDI rates in the 2018 will move between 1000 to 2000.

Of course even in the recessions there are some elements that can help owners to earn more than the others. In the below figure it can be observed that although in the late 2015 the smaller sizes earned more but in the mid 2017 the tables turned and Capesizes have been the winners so far. Therefore, it seems that despite the fact that the market in under pressure, however due to the rising market of major bulk commodities and the fact that they have the advantage of  economies of scale they are earning much more than their step brothers.

However, the fact that through the years after recession of 2008 the top 20 shipping companies have tried to monopolize their market by  getting the biggest ships available in the market, can not be ignored in the equation. Recession itself played an important role running the inefficient companies and ships out of the market and leaving it for the big players.


دسته بندی ها ::
  economic analysis, تحلیل اقتصادی, فله خشک
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 Ali Karim

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