During the first half of 2024, new-build contracting in the dry bulk sector fell by 34.2% year-over-year despite favorable market conditions. Although prices for new builds rose by 6.5% y/y, potentially deterring some contracting, the second-hand market saw a 15.2% y/y price increase and an 11.7% y/y rise in the number of sales. Factors such as limited shipyard availability and uncertainties regarding fuel choices and demand outlook are contributing to the hesitation in new-build contracting, reports Bimco.
Contracts
Shipyards remain occupied with orders from other sectors, including container and LNG ships, and an increased number of tanker orders since 2023. Consequently, a ship contracted today may only be delivered after the end of 2026, particularly larger vessels, by which time the current strong market conditions may have eased.
Uncertainty about which fuel to use for new-build ships is also deterring contracting. Shipowners are concerned about the future availability of alternative fuels across most ports and regions in the near to medium term.
Additionally, shipowners are wary of the demand outlook for certain commodities. Coal shipments may peak this decade, and advancements in green steel manufacturing using scrap steel could affect iron ore shipments in the long run.
Despite the decline in new-build contracting, the dry bulk fleet remains stable. The average bulk carrier is 12.3 years old, younger than those in the tanker and container sectors. Only 8.9% of the dry bulk deadweight capacity is over 20 years old. The current order book, at 9.4% of fleet capacity, should suffice to replace recycled ship capacity in the near term.
Supramax and Panamax ships are overrepresented in the order book, accounting for 34.5% and 32.6% of capacity, respectively. Since the second half of 2023, Panamax contracting has eased, while Capesize contracting has marginally increased. Handysize ships make up only 3.8% of the order book, even though 14.2% of the Handysize capacity is over 20 years old. Many of these recycled Handysize ships will likely be replaced by Supramax ships.
In the medium to long term, new-build contracting is expected to recover, driven by stricter climate regulations. Fleet renewal will become necessary as it becomes increasingly difficult for older ships to comply with these regulations. Furthermore, as the adoption of alternative fuels increases, a clearer path toward decarbonization should emerge, reducing uncertainty.
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Source: Bimco
