In commercial shipping markets, cargoes are carried either in bulk form, within the hold of a vessel, or in non-bulk form, in standardised containers or cargo ships. The bulk shipping industry comprises the seaborne carriage of both dry bulk and liquid bulk cargoes.
Dry bulk cargoes can be classified as major bulk cargoes or minor bulk cargoes, both of which are shipped in bulk form, although some minor bulk cargoes may alternatively be carried in non-bulk form or, if in bulk form, in vessels smaller than 10,000 dwt. The major bulk cargoes include minerals, industrial raw materials and various agricultural products, of which iron ore, coal and grain are the most important. The minor bulk cargoes include forest products, steel products, fertilizers, petroleum coke, bauxite and alumina, cement, other construction materials and other agricultural products. The major bulk cargoes have historically contributed more than 50% (in terms of cargo volumes carried) of overall dry bulk cargoes shipped internationally.
Liquid bulk cargoes comprise crude oil, refined petroleum products, LNG, LPG, ammonia in gaseous state, petrochemical gases and liquid chemicals in bulk form.
As set out above, global seaborne dry bulk trades(2) increased by an estimated 7.8% in volume terms from 2003 to 2004. Iron ore, coal (steam and coking) and grain comprised 33.7%, 38.3% and 15.5% respectively of total global seaborne dry bulk trades in 2004 of 1,755.7 million tonnes. In comparison, this 7.8% growth from 2003 is approximately 2.4 times higher than the annual average growth of global seaborne dry bulk trades for the period 1983 to 2002 inclusive.The growth of 7.8% in the volume of global seaborne dry bulk trades was driven primarily by the growth of dry bulk trades in iron ore, coal (steam and coking) and steel products of 12.3%, 7.3% and 12.7% respectively. The relatively large growth in the shipment of iron ore cargoes of 12.3% is attributed to factors such as the increased supply of iron ore material from newly expanded mining capacity in Australia, and the continued expansion of global steel output, driven primarily from the rapid steel production growth in China, the world’s largest steel producer. The increase in the volumes of coal transported was mainly in response to firm energy demand mainly from Asian electricity generators.
In addition to the increase in global seaborne dry bulk trade, the distribution of the global seaborne dry bulk trade has shifted significantly from Western Europe to the Far East Asia region (this includes Japan, South Korea, Taiwan and China). As illustrated above, in 2004, the Far East Asia region accounted for approximately 60% (in volume) of world imports of the three main cargoes of seaborne dry bulk trade (iron ore, coal and grain), compared to approximately 47% (in volume) of world imports of iron ore, coal and grain in 1989. Furthermore, between 1989 and 2004, cargo volumes shipped to Far East Asia rose in absolute terms from approximately 387 million tonnes in the former year to an estimated 826 million tonnes in the latter, with most of this growth led by greater import demand by China.
Dry Bulk Carrier Freight Market Developments
The Baltic Dry Index is the most widely used indicator of overall conditions in dry bulk shipping markets. For much of 2002, the dry bulk freight market remained relatively stable, before undergoing a steady rise from September 2002 onwards. This rise in the Baltic Dry Index accelerated from September 2003 onwards and continued into early 2004, only to be followed by a sharp downward adjustment in the second quarter of the year. Since then, however, the Baltic Dry Index has scaled another all-time peak in early December 2004 before moderating to levels that were, on average, around 35% below this new record in the first half of 2005. Since July 2003, the Baltic Dry Index has averaged 3,915 points. This is around three times the average of 1,306 points that prevailed over the entire period January 1985 to June 2003 inclusive, before the present market upturn.
The Baltic Dry Index is the most widely used indicator of overall conditions in dry bulk shipping markets. For much of 2002, the dry bulk freight market remained relatively stable, before undergoing a steady rise from September 2002 onwards. This rise in the Baltic Dry Index accelerated from September 2003 onwards and continued into early 2004, only to be followed by a sharp downward adjustment in the second quarter of the year. Since then, however, the Baltic Dry Index has scaled another all-time peak in early December 2004 before moderating to levels that were, on average, around 35% below this new record in the first half of 2005. Since July 2003, the Baltic Dry Index has averaged 3,915 points. This is around three times the average of 1,306 points that prevailed over the entire period January 1985 to June 2003 inclusive, before the present market upturn.
The strength of dry bulk shipping markets since the third quarter of 2003 has principally resulted from firm cargo demand; the substantial (and heightened) volatility exhibited by the Baltic Dry Index, which ranged from 882 points since the start of 2002 to a peak of 6,208 points on 6 December 2004 has reflected the tightness in tonnage demand and supply conditions. However, very firm charter rates for all sizes of dry bulk carrier have also partly resulted from bottlenecks in cargo handling capacity at key loading and discharge terminals. These have resulted in significant port congestion, thereby occupying many vessels for long periods and so reducing the availability of tonnage for prompt trading.
Overall Trends in Dry Bulk Carrier Fleet Size and Age Composition
In the past decade, overall dry bulk carrier supply has risen appreciably in net terms, as new ship construction has outweighed removals from the fleet via scrapping, conversion or casualty. The dry bulk carrier fleet (excluding ships below 10,000 dwt) had risen from 228.1 mdwt as at the end of 1994 to 321.5 mdwt as at end-2004, leading to a net expansion of an estimated 93.4 mdwt, this representing an increase of 40.9%. In terms of tonnage, much of 2004’s rise in ship supply was heavily concentrated in the Capesize sector (an increase of 7.7 mdwt). However, net expansion ensued in all size groups, with the Panamax, Handymax and Handysize fleets rising by 5.6 mdwt, 3.8 mdwt and 1.2 mdwt respectively.
In the past decade, overall dry bulk carrier supply has risen appreciably in net terms, as new ship construction has outweighed removals from the fleet via scrapping, conversion or casualty. The dry bulk carrier fleet (excluding ships below 10,000 dwt) had risen from 228.1 mdwt as at the end of 1994 to 321.5 mdwt as at end-2004, leading to a net expansion of an estimated 93.4 mdwt, this representing an increase of 40.9%. In terms of tonnage, much of 2004’s rise in ship supply was heavily concentrated in the Capesize sector (an increase of 7.7 mdwt). However, net expansion ensued in all size groups, with the Panamax, Handymax and Handysize fleets rising by 5.6 mdwt, 3.8 mdwt and 1.2 mdwt respectively.
As illustrated above, as at end-July 2005, dry bulk carrier supply (excluding ships of 10,000 dwt and below) amounted to 6,013 ships of 335.6 mdwt. However, the age profile of the fleet varies significantly between respective size groups, with a particularly heavy concentration of older ships in the Handysize category. Around 22.1 mdwt of Handysizes (or 30.0% of tonnage in this size range) are already at least 25 years old. Given that the average age at which bulk carriers are typically scrapped is around 28 or 29 years old, these vessels are likely to be candidates for demolition before the end of the present decade. At just 4.3 mdwt, the Handysize orderbook represented approximately 5.8% of existing tonnage in this size sector at end-July 2005 – a far lower proportion than for any other size segment in the whole dry bulk carrier fleet. This implies the potential for ship supply to decline significantly in net terms withinthe next five years, which would serve to offset some of the prospective growth in Handyma (40-59,999 dwt) supply in the corresponding period.
The Handymax fleet is far more modern than that for Handysizes, with just 4.2 mdwt (or 6.5% of tonnage in this size range) of ships currently at least 25 years old. The Handymax orderbook as at end-July 2005 stood at 12.8 mdwt, or 19.9% of existing tonnage in this size segment.
In the Panamax fleet, the supply of ships of at least 25 years old is also very limited, at 4.4 mdwt (equating to 5.1% of tonnage in this size segment), against a current orderbook of 16.5 mdwt or 19.2% of existing tonnage in this size segment.
Based on the age profile and orderbook of the Handysize fleet as at end-July 2005, the net fleet expansion for this size range is expected to be relatively limited in 2005-2010 inclusive. This is due to a) the high proportion of older ships in the existing fleet (which implies that the potential exists for a revival of scrapping) and b) the limited orderbook in this size segment.For many years, exporters of various dry bulk commodities have regarded China as a potentially massive market; yet, by international standards, the proportion of Chinese demand met to date by imported supplies has been very low. However, with the rapid pace of economic development in China, and the strength of steel demand in China, the demand for iron ore imports (shown above) has been the principle factor leading to significant firmness in the dry bulk freight market since late 2003.
In addition to China’s mounting importance as an importer of dry bulk commodities, the country also generates significant employment for dry bulk carriers via its coal exports, with steam coal (including anthracite) accounting for approximately 93% of China’s total coal exports. As illustrated below, in overall terms, coal exports have risen from 37.4 million tonnes in 1999 to more than 80.0 million tonnes p.a. since 2001. The volume of China coal exports is expected to be sustained at levels in excess of 75.0 million tonnes in 2005 and 2006. In 2004, China exported 86.6 million tonnes of coal (mainly steam coal), with Japan, South Korea and Taiwan collectively receiving approximately 85.0% of its total coal exports. Given the relatively short-haul nature of these coal exports from China, these shipments are typically carried in Panamax tonnage or smaller tonnage ships.
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