Dry Cargo

‘Radical action’ required as BDI nears 300 points

With the very real prospect that the Baltic Dry Index (BDI) could duck below 300 points for the first time, analysts and brokers are warning vast amounts of bulkers need to be laid up or scrapped if the sector is to find any form of equilibrium in the near term.

The BDI closed yesterday down 12 points to a new record low of 325 points capes trading at around $2,800 a day and panamaxes at around $2,300.

With the traditional lull brought about by Chinese New Year, which is just nine days away, the index is unlikely to rally any time soon.

“At these levels owners would rather park their ships than carry on bleeding money, and rumours of laid up assets have been rife in the past couple of weeks,” shipbroking firm Braemar said in its latest research note.

Allied Shipbroking’s George Lazaridis in a recent note did the maths on the scale of cold layups needed to get earnings back up. 1,430 dry bulk vessels of 20,000 dwt and above – equating to 14.9% of the current fleet – would need to be laid up to get rates back to sustainable levels, he estimated.

Consultants Drewry meanwhile estimate that if dry bulk shipowners collectively removed half of all capesize ships over 12-years-old, equating to around 20m dwt of capacity, it would enable earnings to return to profitability by 2018. This could be achieved through a combination of scrapping and temporary vessel idling.

“While the proposed adjustments may seem harsh, there is now a need for industry wide action otherwise the market will remain loss making for the foreseeable future,” Drewry warned in a recent note.

“In the absence of radical action, we expect dry bulk shipping freight rates to deteriorate further through the course of the year and to remain weak in 2017. Any recovery will be pushed out further with little near term prospect of a return to profitability,” said Rahul Sharan, lead analyst for dry bulk shipping at Drewry.

Clarkson, meanwhile, in recent note looked at China’s dwindling iron ore appetite.

“2016 looks set to be another dramatic year for iron ore trade, with global seaborne volumes expected to fall 1%,” the UK broker noted, adding: “The days of rapid global iron ore trade growth are unlikely to be repeated.”

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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