- Cape Sector Outperforms as Dry Bulk Market Recovers Slightly.
- Trade Tensions and Tariffs Weigh on Dry Bulk Market Outlook.
- U.S. Port Charges on Chinese Vessels Add Uncertainty to Bulk Sector.
As the initial quarter of 2025 comes to a close, the dry bulk market has registered a mild pickup. The Cape segment has been the bright spot, ending today at a Baltic Exchange time charter average of $20,500—double the level recorded on the first day of January. Other categories have made less significant improvements, ranging from 10% to 30%, reports Break Wave Advisors.
Effect of Continued Conflicts and Fresh Trade Tensions
Where the Russia-Ukraine and Middle Eastern conflicts have yet to be resolved, their effects have generally been incorporated into a two-year-plus evolution in trading patterns. There are, however, new geopolitical hurdles emerging. The threat of tariffs and possible fines on Chinese-made or owned vessels has created new uncertainty within the bulk trade. The USA has played a significant role in this trade war with its tit-for-tat response.
These new trade restrictions are already starting to impact traders’ margins, with tariffs leading to the re-pricing of cargo at their destinations. This change is likely to result in alterations in trade flows, which will further decrease the overall demand for bulk cargo. History has proven that trade does adjust, but usually in a less efficient and more fragmented situation.
The Potential Impact of U.S. Port Charges on Chinese Trade
One of the areas of concern that stands out is the likelihood of U.S. authorities charging heavy port user fees on Chinese vessels and cargo. Although the fate of this remains to be seen, the mere prospect has already created a two-tier market with higher freight costs being passed to U.S. consumers and manufacturers.
Should such tensions persist, both the global and U.S. economies might experience inflation pressures, resulting in slower trade and lower global GDP growth. This, in its turn, will further decelerate demand for bulk cargo, with trade expansion for 2025 projected to be a meagre 0-1%.
Supply Side: New Bulkers and Effects of Container Sector Expansion
On the supply side, the majority market will witness another 3% of bulker capacity being delivered into the water in 2025, with an order book-to-fleet ratio of about 10%. Although scrapping is presently low, it won’t impact fleet size substantially.
Conversely, the container market has a far greater challenge, with 28% order book-to-fleet and an estimated 10% of the fleet to be delivered this year, following similar deliveries in 2024. The arrival of more container vessels will most likely intrude on the bulk market, impacting the demand for break-bulk cargo. Though it may be hard to measure the extent of the influence, bulk cargo spillover to containers will certainly be stronger than anticipated. Referring back to the vigorous container-to-bulk cargo spill in 2021 and 2022, the reverse might now hurt bulkers unless transit through the Red Sea remains uninterrupted.
Outlook for Q2: Expectation of Seasonal Boost
As the second quarter dawns, owners of dry bulk are praying that seasonal demand could bring some respite to the worsening demand-supply balance. Or, a “Black Swan” event could again come to the rescue of the market. But short of a dramatic change in global dynamics, the industry is set to experience further difficulties during the year.
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Source: Break Wave Advisors
