After containers, dry bulk shipping is red hot now

The Baltic Dry Index or BDI, London-based Baltic Exchange’s main sea freight index that tracks rates to ship dry bulk commodities, rose the most in over ten years on Wednesday lifting the spirits of dry bulk ship owners who have been envious of the spectacular ride of container ship owners over the last couple of months.

On Wednesday, the BDI which tracks rates for capesize, panamax and supramax vessels rose 109 points or 3.5 per cent to 3,266 points, its highest since June 2010.

The capesize index rose 224 points or 4.3 per cent, to 5,404 points.

Average daily earnings for capesizes, which typically transport 1,50,000-tonne cargoes of coal and iron ore, were up $1,858 at $44,817.

The panamax index rose 124 points or 4.6 per cent, to an over one-month high of 2,848 points.

Average daily earnings for panamaxes, which typically carry coal or grain cargo of about 60,000 tonnes to 70,00 tonnes, increased by $1,119 to $25,634.

On the other hand, container shipping rates have been sky-rocketing on the back of equipment shortages and space crunch borne out of pandemic-induced disruptions.

On Wednesday, Maersk Line, the world’s biggest container shipping company, posted the best quarter in its history, reporting a net profit of $2.7 billion for the first three months of the year, compared with $209 million for the first quarter last year.

The Danish transport and logistics group said that “extraordinary market conditions” contributed to “around $2 billion” of the net profit.

Supply and demand

Shipping industry executives said that the current rally in the dry bulk segment is supported both from supply and demand side.

On the supply side, the lower year-on-year fleet growth and port congestion have aided the rally.

Between January and April, the net dry bulk fleet grew by 1.2 per cent (10.8 million dead weight tonnage or dwt) compared to 1.6 per cent during the same time last year (14.5 million dwt).

The global dry bulk order book stands at 5.6 per cent of the fleet, the lowest at least since 1996 and the fleet growth is expected to slow down further in the second half of 2021 and 2022.

Between January and April, new contracts for constructing dry bulk ships have been lower - only 5.1 million DWT has been ordered, down 37 per cent year-on-year.

The first quarter of calendar year 2021 witnessed the highest port congestion since the first quarter of 2012. This reduced active fleet supply in the system.

“Even now, congestion remains elevated at load ports of Brazil and Australia,” an executive with a Mumbai-based shipping company said.

The demand side has been propped up by robust year-on-year growth in trade across all dry bulk commodities such as iron ore, grains, steel, cement and fertilisers.

From April, coal has also started “positively adding” to the trade growth.

In the first quarter of the calendar year, the world steel output grew by more than 10 per cent YoY with Chinese steel output growing by over 16 per cent.

Chinese steel prices are the highest in the last 10 years led by strong domestic demand. The strong steel margins are incentivizing use of high-grade Brazilian iron ore, a big positive for dry bulk shipping on long haul routes.

Iron ore price of $194 a ton (10-year high) is incentivicing even minor producers like India to export more iron ore volumes, boosting demand for supramax vessels.

China is scooping up supplies of US corn and wheat to feed its livestock. Demand for feedstock has increased post the Asian swine flu that led to the culling of huge hog population in China.

In the first quarter, thermal power generation in China grew by 21 per cent YoY and with the prevailing low stock levels in China and India, coal imports are expected to drive demand for dry bulk ships.

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