How to Navigate the Dry Bulk Market
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The barometer on the state of health of the dry bulk market is usually reflected in the performance of the Baltic Dry Index (BDI), which is based on a composite of the Capesize, Panamax, Handy-size and Supramax indices. The outlook, based on its past performance, is bleak at the moment.
THE STATE OF THE BULK MARKET
Bulk carriers are known to be the work horses of the maritime world, carrying large quantities of raw goods like iron ore, coal and grain, which are the fundamental ingredients of finished products. With the expansion of the Chinese economy in the early part of the last decade, running at +10% or more and becoming the “workshop of the world”, the demand for such type of vessels was high with seemingly no end in sight. Driven by this demand, investors and ship-owners rushed to place orders for new buildings.
The BDI reached record heights (almost 12,000) in 2008 and plunged dramatically after the Lehman Brothers bank failure which led to the global recession. However, these new ships, ordered years in advance, hit the water during the post-crisis slump that was already weighing heavily on demand for ships, which pushed charter rates lower still. Just as scrapping and a slimming of the
order book was eroding the oversupply of ships, an uptick in Chinese imports in 2013 prompted another rush of orders.
Even though the world economy has rebounded, the BDI has remained very much below 2,000 since 2012. The depressed state of the bulk market today is more a result of the overall supply of ships than a statement on the world economy. Ship-owners gambled that China’s appetite for coal would keep growing, but the country’s policy of weaning...