Will the demand for bulkships out pace the newbuilding splashing down the ways? The IMF (International Monetary Fund) now forecasts that world economic activity will grow by nearly four percent in 2010, in stark contrast to the loss of nearly one-percent in 2009. More economic activity equals more seaborne freight, but with shipowners ordering bulkships at an audacious clip, will ship supply outpace freight demand? By George Lauriat, AJOT There is an old saying, “generals are always preparing for the last war.” Similarly, shipowners are always preparing for the next great wave based on the previous. They are looking for the global rebound that restores freight rates and justifies investment in new bottoms. However, if the current preparations by bulk shipowners are based on the last great rise in ocean freight rates, there is a good chance that shipowners are over estimating the strength of the economic surge. There simply is little similarity to the current upswing and the decade long rise in economic activity that ended with the abrupt collapse and worldwide recession in December of 2008. For example, in early January of ’08, the BDI (Baltic Dry Index), a measure of the freight rates for the combined bulkship classes, was over 11,600. By early ’09 the BDI was clunking along at 700. Even now the BDI is only around 2,700 and has only gone over 4,000 once since the recession began. The impact of the “great recession” on shipping was unprecedented. The collapse was complete: engulfing not only all dry bulk ship classes, but tankers and containerships as well. Perhaps the only sectors spared were highly specialized project cargo ships, although they too were hit as project financing dried up. Elements of Demand Recently the IMF revised its forecast upward for economic activity in 2010. The IMF believes that the “emerging and developing” economies will take the lead in the recovery from recession. Growth in the emerging and developing economies is expected to touch 6% this year and posted just a shade over 2% growth in 2009. The growth in advanced economies is now forecast to hit 2.1% after shirking over 3% in 2009. Two key elements to growth are that China and the US are both expected to perform better this year than originally forecasted. China is expected to top 10% growth, even with Beijing attempting to slow expansion. Even the US, which has economically struggled over the last two years, is anticipated to grow by 2.7%, in contrast to the earlier forecast of 1.5%. The economic upturn has translated into more oceanborne freight. The decline of the US dollar against other major currencies has fueled a boost in US agricultural exports. The USDA (US Department of Agriculture) reported that soyabean exports hit a record volume of 9.3 million in tons in November 2009. This total was 2.68 million tons more than the previous record set only a month before. Soyameal exports also hit record highs at 1.26 million tons, a 124% increase over 2008. Another indicator of global economic expansion is the increase in coal shipments. Bloomberg recently reported that prices for coal shipped from South Africa’s Richards Bay, (Africa’s main coal export facility with a 91 million tonne annual capacity) posted their first increase in four weeks, leading to speculation that the market may have turned. In Australia, Newcastle, the world’s largest coal port, is reporting an 11% increase and long lines of ships heading for China. Actually, there is a deep connection between Australian coal and Chinese economic policy. In a recent deal, Australian Resourcehouse (a privately held mining company) agreed to supply China Power International Development with a staggering 30 million tons of thermal coal per year for the next twenty years. Interestingly, the Export-Import Bank of China provided a majority of the financing for the development of the mines and infrastructure. It wasn’t surprising that Resourcehouse in turn awarded an $8 billion engineering contract to Metallu