Perfect Economic Storm Scraps Dry Bulk Shipping

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Scrapping is the only identified solution to the woes of the dry bulk shipping sector.

economy

The speakers at the Capital Link Greek Shipping Forum expressed their worries about the deserted island below the southern tip of Hong Kong.  At least 10 massive ships that normally carry thousand tons of coal or iron ore lie idle near one of the world’s busiest sea routes.

Reasons for such slowdown:

  • Too many ships and not enough cargoes
  • Chinese Economy slowdown
  • Lurking European monetary crisis
  • Glut in oil and commodity prices
  • About 98 percent value loss in the Baltic Exchange’s main sea freight index

The Baltic Exchange’s main sea freight index, which tracks rates for ships carrying dry bulk commodities, has lost about 98 percent of its value from a peak of 11,793 points in May 2008, marking the lowest level since records began in 1985.

Shipowners are in little doubt about what they have to do to ride out the market of over supply.  Vessels are slow steamed, new orders are refrained, and finally they also resort to layup.

Oversupply of vessels are determined as the real issue of the situation. Shipping is a cyclical business that is often at the mercy of the ebbs and flows of the global economy.  Dry bulk shipping collects a fees of $185,000/day but that has dropped to about $4,000 to $6,000 a day now.  The operating costs for dry bulk ships is at about $5,500 to $7,500 per day, depending on the size of the vessel, the global commodities drop has created a hard time for many operators to cover costs.

“We are faced with mass lay ups or scrapping of aged ships. Layups is not the answer, it’s a short term solution, the answer is scrapping,” said John Michael Radziwill, CEO of C Transport Maritime.

“This is pretty much the worst I have seen in my career. For the bulk carrier industry, this is going to be a grim year and next year is not going to be any better,” said Tim Huxley, Chief Executive Officer of Hong Kong-based Wah Kwong Maritime Transport Holdings, who has been in the business for over 30 years.

Source: Reuters