Future of DRY bulk Ship –Owning
Capt Rahul Bhargava
Baltic Dry Index
Future of Dry Bulk Ship –owning
Historically what went wrong Its impact Year gone by 2016 Present market Future of ship- owning Game changer
Historical facts
Market started to pick up post 2002- China building
Less ships and more cargo – freight rallyChina Olympic fuelled the freight market New Ship yards – order books full for 5 years Indian iron ore exports Private Steel Mills in India Indian thermal power plants World GDP growth
World GDP – 3.54(e) 2017
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20160
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Year 2008 China slowed down after Olympics Lehman brothers – developed world
economy Less trade, negative cargo growth Expensive ships in water Supply/ Demand mismatch Bloodbath on street
Year gone by 2016 Lowest BDI in history. Vessels were idling, put on cold storageCancelation / deferment of future new builds. 3rd Highest level of demolition Asset prices lowest level ( inflation adjusted) Banks off loading distressed assetsLowest contracting of new builds since 2001 (
in DWT) 2H saw surge in China stocking coal.
Increasing the freight rates.
Year gone by 2016 On world news
BrexitMr. Donald trump becoming President of
USA .. America first policy Indian currency demonetisation Opening of Panama Canal locks
Present status
Type of vessel 2013 2014 2015 2016M.Dwt M.DWT M.DWT M. DWT No. M DWT 2017 2018 2019+ Number m.DWT % Fleet
Cape (100k+) 293.8 308.1 309.2 315.1 1663 317.3 15.8 14 6.5 144 36.3 11.40%
Panamax (65-100k) 184.3 192.3 195.2 196.3 2479 198.9 9.5 2.9 0.4 155 12.8 6.40%
Handymax (40-65k) 158.6 166.8 179.6 188.4 3493 191.5 12.5 2.4 0.6 256 15.5 8.10%
Handysize (10-40K) 90.2 91.4 92.7 94.1 3345 94.9 6.2 1.9 0.8 251 8.9 9.40%
Total 726.9 758.6 776.7 793.9 10980 802.5 44.1 21.1 8.2 806 73.5 9.20%
Total on order 2017 Order Book & Delivery
Present status
Fleet growth has been 2.6% y-o-y.
Expected fleet growth in 2017 is 1.6%
Capes constitute 40% of total fleet
World trade is expected to grow by 3% CAGR from 2017~2012 (Sources: Technavio research)
Dry BULK - Drivers Dry bulk market is driven by heavy industrial activity and
fossil fuel60 % of cargo is moved for steel industry China changing focus from infrastructure, housing and
heavy industry to consumer and service industryDrop in use of fossil fuel for energy Thermal coal import to UK dropped 80% y-o-y in 2016Its reported that energy supply from coal hit zero for half
a day in UKIndia is reducing imported thermal coal to domestic coal.
Dry bulk Owner’sDry bulk shipping is extremely
fragmented. Owners have very little influence and
bargaining power with traders/end users.
Shipping is more profitable as asset play than a logistic support to trade.
Conservative owners are comfortable running their vessels on long term charter.
Game Changer Zero Supply side growth
Consolidation or evaporate Merger of NOL/APL within CMA CGM Absorption of UASC into Hapag Lloyd Maersk line acquired Hamburg SudCreation of J Line – merger of NYK, Mitsui OSK and K-
line. Loss of Hanjin Line
Game Changer Ship owner’s strategy has to change from asset play
to logistic provider and focus on Return of Capitol. 30 Valemax have been ordered for delivery in 2018 by
three Chinese Owners with b-t-b 25 years charter with Vale.
Vale max once all delivered will carry 50% of Brazilian iron ore.
Banks may not be the biggest support of ship acquisition.
Basel III norms will make less cash available with banks.Non Banking finance like export credit agencies,
bonds, public and private equity will be investors. Higher equity component and higher interest rate.
Game Changer Large Ship Owners will develop long term
relationship with major customers. Banks will fund them making them competitive over small owners.
Large owners will have resources to create, deliver a flexible and value added logistic solution.
Likewise, major customers would like to work with fewer shipowners
Vale signed long term CoA’s with Cosco, China Merchant Group and ICBC.
Once the bulk of business is covered on long term contracts, the intensity and frequency of cycles will decrease.
Asset play will be less attractive
Game Changer Small ship owners
Banks reluctant to finance Higher equity infusion Higher CAPEXUnable to enter long term CoA due to fleet
size Mostly work on spot market, exposed to
market vagaries
Road to Recovery • One Belt one road initiative
Road to Recovery Iran has opened up for trade.Bunker prices are lower. BMW regulations SOX and NOX regulations
Construction related seaborne trade growth
Thanks