Out of the doldrums

Although freight rates came down (due to seasonal factors) in June and early July, they remained surprisingly strong for that time of the year. More to our surprise, they then rebounded considerably in late July/early August with one-year freight rates exceeding USD 10,000/day for Panamax vessels and USD 15,000/day for Capesize vessels.

Capesize market evolution vs shipping stock price(Source : BanqueThaler; Bloomberg)

This bodes well for the next couple of months, as demand typically increases towards year-end and few new ships will be leaving the shipyards. Most ships foreseen for delivery this year are already at sea, with only ca. 0.5% of the existing fleet capacity to be added before year-end. The remaining order book for new vessels is now at its lowest in a decade: less than 5% of the total Capesize fleet and ca. 6% of the total Panamax fleet is scheduled for delivery over the next 30 months. This is below the normal annual scrapping rate of older vessels. It is thus safe to say that the fleet will not, or only barely, grow over the next two years while demand for bulk transport is currently increasing at a rate of some 3% per annum.

There is only one negative: the scrapping of older vessels has virtually stopped, due mainly to the delay (granted by the International Maritime Organisation, IMO) of the compulsory installation of ballast water treatment systems from the coming September to September of 2019. The introduction of such systems would have accelerated the scrapping of older vessels, owners not wanting to make such a costly investment on ships whose remaining lifetime is limited. All told, the vessel market seems more or less balanced for now, with the IMO decision postponing projections of a deficit situation to 2019. This is not to say that undervalued bulk shipper stock prices will not continue their upward trend, started almost a year ago.

(Last update : August 2017)