For an industry that is losing money on almost every transaction, the world’s commodity shippers are remarkably busy grabbing any cargo they can get their hands on. From space, where satellites track ship movements, it all appears like the market is booming, data compiled by Bloomberg show. At giant iron-ore loading terminals in Brazil and Australia, millions of tons are loaded each month on vessels that come and go like clockwork. Along the coastlines of China, Singapore and even Greece, the picture is the same: little waiting about.  But all that movement is a consequence of weakness, not strength. Commodity prices and demand are so lousy, freight rates for the biggest ships don’t even cover a third of the cost of their crews. While owners would normally idle ships when things slow down, hoping to spark a rebound in rates, the outlook this time around is so dire that many figure it’s better to have some business. Otherwise, they risk losing market share and earning nothing. “It’s a bizarre scenario,” said Simon Francis, the founder of G-Ports Ltd., a Penryn, England based company that’s been monitoring shipping congestion for a decade.  “There don’t seem to be that many waiting around for cargo” even though the industry is “on its knees,” he said.

Shipbuilding Boom

For the first time since the early 1990s, combined trade in coal and iron ore is poised for two straight years of contraction, predicts Clarkson Research, part of the world’s biggest shipbroker. Almost every type of commodity carrier will fail to make a profit this year, and they’ll earn almost nothing in 2017, according to analysts’ forecasts and industry breakeven figures compiled by Bloomberg. The current crisis stems from a shipbuilding boom that doubled the fleet’s capacity in the seven years through December, which included a bull market in commodity prices as global demand surged. Owners increased new-vessel orders when rates rose to a record from 2007 to 2009, wagering that China’s near double-digit economic growth at that time would persist. It was a bad bet. Instead, the world’s second-largest economy is expanding at the weakest pace in 25 years.

Tough Choice

As ship owners wrestle with oversupply, they are scuttling older vessels at an unprecedented pace. A record 88 capesize bulkers were broken up last year, and 14 had already been scrapped at the end of January this year, according to GMS, which buys ships destined for demolition. It may not be enough. Wrecking yards would have to scuttle more than three times the number of ships scrapped last year to stabilize freight rates, according to Herman Hildan, a shipping-equity analyst at Clarksons Platou Securities in Oslo. Owners saddled with more ships than they need are faced with a choice: leave vessels waiting at major ports in the hope that rates pick up, or carry on shipping unprofitably. For now, many are choosing the latter. While some ships are sitting idle, most are on the move. Average waiting near Port Hedland in Australia was four days for 80 Capesize ships preparing to load iron ore, according to data compiled by Bloomberg. Off Brazil, it was five days for 36 vessels. Of vessels monitored near China, the average was two days. “Delays haven’t really done a lot for months,” said Francis, the founder of G-Ports. There are multiple ways owners can idle carriers. They can either reject cargoes for several days in anticipation of better rates, or they mothball vessels for months or years, a process the industry calls layup. The longer the inactivity, the more difficult it is to reactivate the ship. There are few signs that owners are turning away business or waiting out the slump, according to Herman Billung, the chief executive officer of Oslo-based Golden Ocean Group Ltd., which has a fleet of 70 vessels.

Costly Process

That is in part because laying up a ship—removing some of its crew and anchoring it—is a long and sometimes costly process, Billung said. Owners will often borrow ships from one another, either because they are betting on a rates rally or because they have cargoes they need to cover. When rates fall, such companies need the ships to earn whatever they can to repay the companies who lent the vessels. There are also loans and other financing expenses to consider. “Anything giving a return better than zero makes sense” for many owners, the shipping executive said by telephone Feb 25. “It’s a big tussle.” The dry bulk fleet could decline by the end of the year, Billing said in a March 3 interview, adding it could take a couple of years for commodity shipping to recover. Golden Ocean rose as much as 2.4 percent to 5.14 kroner (59 cents) in Oslo Thursday, giving the company a market value of 2.6 billion kroner. The stock traded at 5.04 kroner at 11:38 a.m. London time.

Speeds Steady

Even ship speeds, which owners can reduce to manage vessel supply and curb their fuel costs, are little changed this year compared with the same period in 2015. Capesizes moved at an average of 8.6 knots in 2016, compared with 8.78 knots a year earlier. That compares with more than 11 knots in 2009, the highest annual average in data compiled by Bloomberg since 2008. To reverse the rout, the industry would need to hold back ships as rates tumble to record lows. The average time-charter return for a Capesize vessel dipped below $1,000 a day for the first time ever on Feb. 26, down from a record high of $223,000 in 2008. The daily cost of a crew is about $3,167, and that’s exceeded rates every day since Jan. 6, based on estimates by shipping consultant Moore Stephens. The future isn’t looking much better. “There doesn’t even seem to be light at the end of the tunnel,” Hildan said by phone, adding that the industry’s biggest vessels may not break even again until 2018.