While the dry bulk trade grew at a compounded annual growth rate of 5.5% since China was admitted to the WTO (World Trade Organization), we’ve seen a pick-up in growth over the last two years. Preliminary data shows that trade expanded at 6.6% between 2012 and 2013, the highest increase over the last decade.
The current consensus shows that the global dry bulk trade is expected to continue growing at approximately 5%. A separate presentation by Golden Ocean Group forecasts growth of above 6% between 2013 and 2016, while Navios Maritime Partners sees approximately 6.5% demand growth.
While coal import growth could slow down in 2014, shipping rates are expected to benefit from fewer newbuild deliveries. Current figures from Clarksons show that 75.1 million deadweight of new capacity is expected to be delivered this year. This is more than last year’s 62.1 million deadweight net capacity addition—but keep in mind that approximately 30% of this year’s delivery isn’t expected to be delivered due to typical cancellations and slippage.
As shipping rates rise, scrappage is expected to fall this year. In 2013, 22.2 million deadweight tonnage of capacity was retired, which resulted in net fleet addition of 39.9 million deadweight and net fleet capacity growth of 5.9%. Up to January 24, 2014, 0.7 million deadweight tonnage was retired for this year, which isn’t a lot on an annual basis.
But ~11.4% of current capacity are vessels aged 20 years and above. So if rates fall, we could see scrapping activity increase to support shipping rates. If scrapping activity doesn’t fall, however, investors should take it as a sign that companies expect a more favorable outlook ahead and are willing to hold on to existing vessels. In the NMM’s Q&A, CEO Angeliki N. Frangou suggested that a minimum of 20 million deadweight tons will be scrapped.
Altogether, net fleet additions in 2014 are expected to come in below the 39.9 million deadweight reported last year. Net fleet growth is expected to be less than demand growth. The fact that several companies, including Navios Maritime Partners LP (NMM), are looking to charter out vessels for short durations reflects management’s expectation of higher rates ahead.
© 2013 Market Realist, Inc.
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