Taal selectie

Shipping

Out of the doldrums

Just when dry bulk shipping was - as foreseen – emerging from its seasonal doldrums, President Trump “tweeted” his intention to impose tariffs on steel and aluminium imports (from China), later followed by another list of Chinese products.

evolution capesize graphs(Source : BanqueThaler; Bloomberg)

China immediately retaliated with a list of US products that will be taxed, among which US soybeans stand to be the most harmful for bulk shipping. Capesize and Panamax freight rates fell in the spot market (voyage charters) while 3-month Forward Freight Agreements (FFAs, comparable to futures) took a dive. Fear also gripped equity markets, with shipping stocks hit hard. On the positive side, though, one-year time charter rates remain firm at ca. USD 19,000 per day for Capesize vessels and even up to USD 14,000 per day for Panamax ships. Long-term FFAs have not reacted and still exceed current freight rates. Second-hand bulker values have continued to rise (especially in the older vessel segment, thanks to Chinese buying), as have shipyard prices for newbuilds.

All this suggests that charterers and ship owners remain confident, not expecting a full-fledged trade war which would obviously hurt world economic growth, hence demand for shipping capacity. The scrapping of older ships came to a virtual standstill in the first quarter, with only 3 Panamax and 7 Capesize ships sent to the breakers (the average age of these vessels being close to 30 years). Meanwhile, 19 Panamax and 16 Capesize vessels were delivered during the first quarter, driving an increase in the total fleet. That said, the fleet should stabilise going forward, since most of this year’s scheduled newbuilds have already been delivered and a higher scrapping rate is to be expected. Scrap values are exceptionally high and should attract more sellers of older tonnage.

Currently subdued new ordering patterns are also good news, with only 9 Panamax and 14 Capesize vessels ordered during the first three months of the year. All told, our underlying investment thesis remains in place and we keep a very positive stance on bulk shipping over a 12- to 18-month timeframe. Strong global economic growth (President Trump permitting) will continue to fuel bulker demand while the fleet will increase only marginally through at least the second half of 2019.

Update : April 2018