Dry bulk shipowners face challenging 2020

The dry bulk fleet grew significantly more than demand last year. And 2020 will also not become a savior for the strained dry bulk sector, according to observers and stakeholders. There is a need for political stability, Ultrabulk CEO tells ShippingWatch.

Photo: Stringer Shanghai/Reuters/Ritzau Scanpix

It would come as no surprise if some dry bulk owner's patience is wearing thin.

The start of the year looks perilously close to a repeat of the collapse last year. Some three weeks into the new year, rates have gone down by almost 30 percent since, according to the benchmark Baltic Dry Index.

Some of it is due to seasonality, with the Chinese New Year pulling some of the steam out of the market. Another part of the explanation can be found back in 2019.

The trade dispute between China and the US has been given a big part of the blame for the weak market last year. The same applied to the tragic incident in Brazil where a mine collapsed in the spring, cutting a deep chunk out of the country's iron ore export.

It has very much been a steep decline. We expect that 2020 as a whole will also be a year that brings certain challenges"

Peter Sand, chief shipping analyst, Bimco

As such, some of the business was pushed from the first quarter into the third quarter, where the markets were strong. And this made some "speed-blind" and made them bet on a fundamentally strong market, says Peter Sand, chief shipping analyst at interest group Bimco.

This may have affected scrapping of ships, which perhaps was lower than it otherwise would have been due to the solid rates. Last year the fleet grew by four percent against a demand growth of just one percent. And this can be felt today.

"We're reading this a bit into the dramatic slide that's currently happening, in which all segments are loss-making. It has very much been a steep decline. We expect that 2020 as a whole will also be a year that brings certain challenges," Sand tells ShippingWatch.

"We will also here see a higher fleet growth than demand growth, which will produce lower average rates for the second straight year."

Political uncertainty

In the coming year, the fleet is expected to grow by 3 percent against a demand growth of 1 to 2 percent. The deterioration will thus be smaller than in 2019, but it will be notable, says Sand.

We're currently not seeing any clear signs that we will see political stability in the short term"

Per Lange, CEO, Ultrabulk

Per Lange, CEO of dry bulk operator Ultrabulk, describes 2019 as disappointing. He is not that worried about the dip at the beginning of the year, however. There are other things that worry.

"The continuing global political uncertainty makes it difficult to believe in an imminent surge in new investments, and thus improvements in the global economy. We need that in dry bulk in order to achieve a sustainable recovery in the market. We're currently not seeing any clear signs that we will see political stability in the short term," he writes in a comment.

Ultrabulk therefore does not believe in a significantly better 2020.

This would require that the trade dispute between China and the US is stopped completely.

Deal is not enough

On Wednesday this week, US President Donald Trump and Chinese Deputy Prime Minister Liu He signed a phase-one trade deal. According to Reuters, this means that China will increase its import of US goods by around USD 200 billion over the next two years.

Meanwhile, the US will cut in half some of the levies that have been, or are planned to be, introduced.

However, the deal will not make a big difference in the short term, says Bimco. During the dispute, the Chinese have, among other things, sent shipments of corn and soybeans to South America instead of North America. But the signing of the deal does mark a step away from escalation, and that is positive, says Sand.

"China is still the big driver in dry bulk, and we're still seeing weakness. We can look toward a 2020 that will not be as bad in terms of balance as 2019. But we're still going down, it's just not happening as fast as last year," he says of the prospects.

Photo: PR / Clipper Group

At Ultrabulk, CEO Lange expects that the dry bulk operator's customer relations will help it through the tough years.

"Our business has also benefited from the synergies with our niche departments. This is something we're working strategically to grow, in part in the current areas, but also in looking for new niches."

English Edit: Daniel Logan Berg-Munch

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