Ten takeaways from the bulk carrier market

The dry bulk carrier market is once again bumping along at historic lows with Baltic Dry Index (BDI) running in the mid-500 range. One quarter into 2015, here are some early takeaways on the dry bulk market in the Year of the Goat.


Greek Banks bearing notes: The Greek banks are trying to shift the debt from Greek shipowners. The orderbook for Greek shipowners exceeds $27 billion and the Greek banks have their hands full with the country’s sovereign debt and a potential third bailout.


Second Hand Prices tumble: With weak demand, prices for second hand dry cargo vessels have tumbled. Second Hand ships, because they are delivered today rather than two years plus like a newbuild, reflect current conditions. Unfortunately, ship sales are down and prices are falling – reportedly some sales are less than double scrap prices.


Bankruptcies to rise as owners fall: Bankruptcies will increase with the BDI under 1,000 and vessel utilization at around 70%. In recent months, South Korean Daebo International, China’s Winland Ocean and the Danish carrier Copenship have all floundered.


Newbuild prices to fall: Prices for dry bulk newbuilds will continue to erode. Prices for Capesize bulkers were over $54 million in December 2014 and just over $53 million in January 2014. Chinese shipyards are desperate to stay afloat and offering rock bottom pricing.


Orderbook to rise…4th quarter?: For the moment new orders will continue their downward trend. In January the dry bulk orderbook was 169 million dwt in January, down from 171 million dwt in December 2014. However, rock bottom shipyard prices in China, which has over 60% of the dry bulk orderbook, will likely attract ship-owners back to the yards by the fourth quarter as they look to the economic forecasts for 2016-17.


IPOs versus Private Capital: Financing is shifting. Western shipowners are looking to IPOs while Chinese and Asian owners are looking for privately placed capital. While the IPO route is tried and true, private placement has fewer regulatory hurtles.


Dry Bulkers weak on bourse: With second hand vessel prices declining and a weak market, publicly traded dry bulk shipping stocks like Diana Shipping, Navios Maritime, Safe Bulkers and others are likely to suffer. Consultants have already been recommending, “Sell” or “Hold” on dry cargo based shipping stocks. For example, recently Deutsche Bank downgraded Star Bulk, while Platou Consultants, the world’s largest shipbroker advised clients to divest shares in Norden, Golden Ocean and Knightsbridge.


M&A: One of the inevitabilities of a depressed market is mergers and acquisitions. Currently, Knightsbridge Shipping, the listed dry bulk shipping company in John Frederickson’s (likely the world’s largest shipowner) portfolio of shipowning companies, is merging with Golden Ocean, and that the new company plans to consolidate in the dry cargo sector. Last year, Star Bulk Carrier Corp merged with Oceanbulk to create the largest U.S. listed dry bulk company with 65-vesselsoperating and a large orderbook. Oaktree Capital Management, a private equity firm owns 58% of the merged company. With more dry bulk companies plowingthrough seas of red ink, opportunities abound for capital looking for an investment in shipping.


Last one into the pool - Alliances: In an unusual move, five dry bulk carriers specializing in “Cape Size” vessels [vessels typically over 100,000 dwt] have formed an alliance or pool called Capesize Chartering. The new alliance consists of Bocimar International NV, C Transport Maritime, Golden Ocean Group Ltd., Golden Union Shipping Co. and Star Bulk Carriers Corp. In total the group will command 80 vessels.


China Syndrome: With everything supporting demand for bulk shipping pivoting around the performance of the Chinese economy, a slowing of GDP growth to under 7% will translate into morbid results for bulk ship operators. Last year the Chinese economy grew by 7.4%, the lowest rate since 1990 with heavy industry and building sectors underperforming. The PRC is expected to set a growth target of 7% GDP but the question is whether Beijing’s stimulus programs will be enough to hit the mark.
George Lauriat
George Lauriat

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