Depressed dry bulk market conditions have put severe financial pressure on owners in recent times, triggering a slump in bulkcarrier contracting. This has helped drive a significant contraction in the bulkcarrier orderbook, which hit a nine year low at the start of September. On the back of the newly slim orderbook, bulkcarrier fleet expansion is expected to ease in the coming years…
A Dry Foreword
A dearth in ordering has seen the bulkcarrier orderbook shrink fairly consistently since mid-2014. By September 2016, the bulker orderbook had shrunk to 108.4m dwt, down 19% since the start of the year. This was equivalent to 13.8% of the fleet, down from 17.2% at the start of 2016. Overall, the bulker orderbook is at its slimmest for almost a decade (see graph), despite a ‘non-delivery’ rate of over 50% in the year to date. Let us take a closer look at the full story.
A Concise Chapter
Capesize contracting had been in fairly steady decline since the start of 2014, until 30 ‘Valemax’ 400,000 dwt orders were placed in early 2016; these units currently account for 11% of the total bulker orderbook in terms of capacity. Nevertheless, by the start of September 2016 the Capesize orderbook had contracted to a three year low of 47.1m dwt, also supported by a 10% y-o-y rise in Capesize deliveries in January-August 2016.
Meanwhile, by the start of September, the Panamax orderbook shrank to a nine year low of 21.4m dwt, driven by the consistent slide in contracting activity in the sector, including for Kamsarmax designs, in recent years. In 2015, Panamax ordering totalled 6.6m dwt, down 49% y-o-y. This was followed by a near total collapse in reported Panamax orders in the first eight months of 2016. Similarly, newbuild contracting activity has slumped in the smaller Handymax and Handysize sectors, in recent years, before dropping to an almost standstill in January-August 2016. This saw the Handymax and Handysize orderbooks shrink to 28.4m and 11.5m dwt respectively by the start of September 2016, representing a 10 year low in both cases.
A Shorter Ending
A closer look at the latest reported bulkcarrier delivery schedule also indicates how much thinner the orderbook now looks for the coming years. At the start of September, only 60m dwt, or 55% of the bulkcarrier orderbook, was scheduled to be delivered after the close of the current calendar year. This compares to 67% in September 2015. The slim orderbook is currently expected to contribute to bulker fleet growth of 2.0% in full year 2016 followed by around 0.8% in 2017; this compares to average annual growth of around 9% in the period 2010-15.
So, it appears that ongoing supply-side trends, not just in terms of demolition but also in terms of the orderbook, contracting and deliveries, are helping to reduce the potential for bulkcarrier fleet expansion. That’s all part of the ‘market mechanism’ trying to re-balance supply with demand. However, it all takes time, so don’t forget to keep reading the story…