Slowing global demand, excess capacity hit dry bulk shipping firms

By Desmond Wong, Channel NewsAsia
09 January 2009

SINGAPORE : Slowing global demand and overcapacity are sinking dry bulk shipping firms, with several seeking bankruptcy protection in the past three months.

Experts expect this trend to continue into 2009 as major economies like China slow consumption and financing becomes harder to secure in the industry.

The key Baltic Dry Bulk shipping index has dropped 92 per cent in the past year alone.

Falling demand for trade and difficulty in obtaining financing have led to an increase in the number of dry bulk ship operators and owners seeking bankruptcy protection.

Hiring rates have also plunged, with vessels which could have been hired out for US$200,000 a day in the past now going for between US$2,000 and US$9,000 a day.

And flagging demand is not the only stumbling block the industry is facing. An oversupply of ships in the dry bulk sector have kept rates down, and this could worsen next year.

Divay Goel, director, Drewry Maritime Services, said: "We would expect that even if demand were to pick up to historical levels which we saw in 2006 and 2007, we have a huge order book overhang in 2009 and 2010."

With the sector facing increasing financial difficulties, cancellations of ship orders and scrappings of half built vessels have increased.

While bad for shipbuilders, this could help the dry bulk sector in general to recover more quickly by trimming the number of excess vessels.

Christopher A Jones, director, Sale & Purchase, Island Shipbrokers, said: "With scrapping increasing and with cancellations in the new building order book, we expect that we will reach a more balanced fleet sooner than we expected."

Market watchers said the current correction is expected to bring dry bulk rates back to levels seen in 2004 before the boom seen in the past three years.

At that time, Cape-sized vessels were going for between US$60,000 and US$70,000 per day. - CNA/ms