Bulk Carrier Market Weakening

Drewry Shipping Consultants has concluded that the market for 100,000-dwt bulk carrier ships is weakening due to increasing incidences of vessel oversupply, and last year's high freight earnings. According to its report, Capesize Bulk Carriers: Market Trends and Prospects for the Large Bulk Carrier Fleet, in 1995, the sector orderbook increased from 19 to 30 percent of the available trading fleet, accompanied by a scrapping level expected to register a negligible impact on the market imbalance.

However, Drewry points out that a fundamental change is taking place within the Cape class bulk carriers, namely, that the fleet is subdividing into smaller, older Capesizes of 120,000 to 140,000-dwt, and a new generation of ships weighing 160,000 to 170,000 dwt. In other words, replacement is not "like for like." On the plus side, the consultancy firm projects that trade volumes will not slacken, and that demand for these large-sized vessels will become more dominant in the iron ore trades and will benefit from the burgeoning coal sector.

Specifically, Drewry says that the requirement for Capesize + bulk carriers will increase from 491 to 661 million tons of cargo, and correspondingly, from 2,665 to 3,660 billion ton miles. The gain shown is also expected to highlight the subdivision of the Capesize fleet, with forecast demand in 2005 for 100,000 to 150,000-dwt ships registering at 1,306 billion tons, and demand for 150,000-dwt + ships rising from 1,360 to 2,350 billion ton miles. Assuming that this demand is met by vessels achieving 1995 productivity levels, the requirement for Capesize + vessels will predictably reach 98 million dwt in 2005. As measured by freight rates, Drewry's view is that the peak in 2000 could demonstrate rate gains of 7.5 percent on the 1995 average. Following this, the estimate for 2005 would yield a comparable gain on 1995 of approximately 17 percent. According to the U.K. firm's research, in terms of ownership in this vessel class, Japan holds first rank with 27 percent ownership, South Korea and Greece claim 13 percent and 10.5 percent, respectively, and Hong Kong registers at nearly 10 percent. Significant fleet owners include NYK, with 18 ships totaling nearly three million dwt; Mitsui OSK with 17 ships; K Line, Navix Line and Ofer Group each with 13 ships; Showa Line with 12 ships; Hyundai MM, Keoyang, and P&O Bulk each with 11 ships; and Hanjin, Korea Line and Overseas Shipholding Group, each with 10 ships. It is also noteworthy that 42 of the identified owners run only one Capesize bulk carrier, while an additional 24 are two-ship contributors, which underpins the two schools of Cape class operation. Drewry concludes that the traditional tightness of supply in this class sector has provided lucrative opportunities for older ships and "deterred a rush of sales to the breakers." For more information on this report Circle 18 on Reader Service Card