Falling demand and oversupply has severely impacted commodity values, with iron ore and coal prices in virtual free fall. The dry bulk shipping sector has been a casualty of these developments with resultant impacts on vessel earnings. However, there is some optimism for small vessel employment, as the onset of El Nino weather conditions will increase demand in the long-haul grain trade. The depressed state of the dry bulk sector has led to doubts about the future of many shipowners and their ability to withstand prevailing market conditions. Drewry believes that the future of a number of yards and owners are at risk and further details of this analysis are available in the report.

Given the uncertain economic outlook, Drewry’s forecast takes account of two possible scenarios. The most likely is the base case scenario, which assumes that demand grows at a faster pace than supply in 2015 and beyond, helping dry bulk shipping recover by 2017. However, the less likely low-case scenario takes a more pessimistic view of future Chinese iron ore and Indian coking coal import demand.

“In the low-case scenario, the dry bulk trade would contract in 2015 with only modest growth in subsequent years, creating a depressed market and making it difficult for many shipowners to survive the unfavourable market conditions,” said Rahul Sharan, Drewry’s lead analyst for dry bulk.

Weak demand has enforced some control in vessel supply, through high levels of demolitions as well as delayed or canceled deliveries. Drewry expects slippage rates to remain high through the remainder of this year and next which will keep a lid on any fleet growth in 2015.

“We expect a marginal improvement in earnings from the third quarter but this will be too small to have any noticeable effect on industry income. We anticipate a recovery from 2017 driven by rising demand from developing Asian economies,” said Sharan.

Source: Drewry