Dry looks dreary

A bulging newbuilding orderbook will keep the dry-cargo market depressed for the next three to five years, Drewry says.

Order cancellations have not gone far enough, while suggestions a recent rally in the market is the beginning of a wide scale recovery are premature, according to its quarterly dry-cargo update.

Jaya Banik, editor of the report, said: “There are encouraging signs in the market, but these are offering temporary relief rather than the promise of sustainable recovery.

“Orders are being deferred or postponed but not cancelled in sufficient numbers. Scrapping in 2009 will exceed the last five years put together, but deliveries will still be double that figure.

“Even though new ordering has come to a near-complete halt, the present orderbook promises fleet growth at an average annual 8.7% for the next five years. Clearly that needs to be reduced significantly if we are to see any serious recovery prior to 2012.”

Drewry says an additional 1bn tonnes of dry-bulk demand is required worldwide every year to occupy all of the new ships. State sponsored recovery packages will, however, only boost demand by one fifth of the level required, the report claims.

Based on the present orderbook, the dry-cargo fleet will grow by 4% in 2009, while demand will shrink by 11%.

Next year the fleet will swell by 13% and by a further 17% in 2011. Meanwhile demand will increase by 6% and 7% respectively, the report says.

With that in mind, oversupply will reach 105 million dwt in 2009, 140 million dwt in 2010 and 200 million in 2011, it claims.

Drewry said: “If the still-widening balance is to be restored by reducing tonnage, the fleet would theoretically need to lose an average 35% per year to 2014.

“Unfortunately, the rate of confirmed cancellations has slowed in recent months. We fear that this is shipowners taking a very short-term view of the market after recent rises in the BDI.”

Measured against market slumps over the past two decades, the consultancy says rates will not turn sufficiently upwards until 2014.

Stimulus packages, scrapping and newbuilding cancellations may be enough to fire a recovery sooner, however.

“We believe that the recent recovery in the BDI is a short-term phenomenon and the market is likely to remain extremely volatile for the next 12-18 months,” Banik said.

“The overall trend is for a further weakening as the glut of newbuildings takes to the seas. We do not expect to see any sustained improvement in demand before 2011, with rates only starting to make a comeback in 2012.”

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