New ship deliveries in the depressed dry bulk market will be below expectations this year and vessel scrapping will remain high, providing the sector some relief, shipping executives said.
Many of the ship orders on the books are unlikely to be fulfilled because either the operator or the ship builder is defunct or close to it, the executives said, adding extremely low charter rates would squeeze more ships from the market.
“About 10 percent of the order book is rubbish,” Lasse Kristoffersen, the Chief Executive of ship owners and operators Torvald Klaveness Group told a conference.
The dry bulk sector has been in a deep depression for years and ships being launched now were ordered during the boom years before the global financial crisis.
Firms are struggling just to survive as spot charter rates are below $5,000 per day for the large, capesize class ships, well below break even levels and just a fraction of rates in excess of $100,000 a day in 2007 and 2008.
The global fleet is scheduled to grow by over 100 million deadweight tons (dwt) this year, well over 10 percent, but Kristoffersen predicted that the actual figure would be closer to 65-70 million dwt.
“With scrapping included, our projection is for a net increase of just 35 million tons (dwt),” Konstantinos Adamopoulos, the chief financial officer of Safe Bulkers said.
That is below some market expectations with Morgan Stanley predicting the fleet to rise by 63 million tonnes or exactly 10 percent, and for the utilization rate to fall to 74 percent from 77 percent.
“Based on (low) January figures, we think non-deliveries this year could be dramatically higher,” Ted Petrone, the President of operators Navios Corporation said.
In 2012, around 34 million tons were scrapped, or 5.5 percent of the entire fleet, the highest rate in decades, said Norwegian bank DNB, one of the biggest global shipping lenders.
“It’s good if we have rates this low for the next 6-9 months because it’ll push for more scrapping,” Herman Billung, the CEO of Golden Ocean said.
Executives estimated that around 90 million dwt of capacity was older than 20 years and thus ripe for immediate scrapping.
And while new orders peaked in excess of 170 million dwt in 2007, they fell as low as 20 million dwt last year, DNB said.
“If you believe the demand side, late 2013 or 2014 could be the turning point for the industry,” Kristoffersen added. (Reuters)