Taal selectie

Shipping

Out of the doldrums

July and August saw dry bulk freight rates reach levels not seen since the end of 2013. This is surprising as freight rates usually tend to weaken during the summer months and then pick up heading towards the Chinese New Year.

evolution capesize graphs09.18(Source : BanqueThaler; Bloomberg)

This suggests that the market is currently more or less at equilibrium, with Panamax vessels earning ca. USD 14,000 / day (one-year time-charter) and Capesize vessels ca. USD 24,000 / day.

Newbuild orders remain very low, particularly in the Capesize and VLOC (very large ore carrier) segments. Only one Capesize vessel was ordered during the summer months and no VLOC (as has been the case all year long). Eight Panamax vessels were ordered, for a total of 31 so far this year. In aggregate, the dry bulk order book remains just below 10% of the existing fleet – to be delivered over the next two to three years and barely covering the expected acceleration in scrapping of older vessels due to the IMO 2020 sulphur emission rules.

Activity in the second hand market for vessels is not buoyant (few deals have been announced beyond Star Bulk’s continued fleet expansion) but transaction prices remain firm.

Ship-owners’ hesitations to invest in newbuilds and/or buy vessels in the second hand market are directly related to the uncertainty created by President Trump’s trade war rhetoric (and already implemented import taxes on Chinese goods). Adding to their cautiousness is the forthcoming introduction of low sulphur emission rules in 2020 and associated questions regarding the price and availability of compliant fuel. Investors share these same concerns, which have led them to drive down the prices of publicly traded bulkers down by over 5%.

That said, bulk shipping fundamentals remain very strong, indeed the best in years. Absent a scenario in which President Trump (alone) derails world trade, which we consider highly unlikely, there is no reason for bulk shipping stocks to trade at only 60-70% of their net asset value (fleet value less debt).

Update : September 2018

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