If you thought the container shipping industry was burdened by overcapacity, have a look at the dry bulk sector that is being flooded with new ships.
A Cargill International executive said in Singapore that dry cargo ships totaling 106 million dwt would be delivered this year.
The cascade of new capacity would boost the world’s fleet by 17 percent, while the dry bulk market was only expected to grow by 7.5 percent.
This relatively low market growth estimate is a result of China’s attempts to cool its runaway economy. The mainland is facing fast rising inflation and has placed harsh curbs on bank lending. This will see fewer property and manufacturing developments, which will lead to slowing demand for dry bulk raw materials such as iron ore and coal.
Operators of dry bulk fleets were pessimistic in their outlook, expecting this year to be poor and next year to be even worse as China’s austerity measures begin to bite.
Chief concern to ship owners is the drop in freight rates. The South China Morning Post reports that average rates for a 180,000 dwt dry cargo capsize ship carrying iron ore from Brazil to China is now at US$21,000 per day compared to the $48,000 per day that was being earned last year.
Yet there are imponderables that make the supply-demand balance difficult to predict with any accuracy. Construction may slow in China, but if mainland export orders flood in for the peak season there will be a new demand for raw materials for manufacturing and coal to stoke the fires of industry.
Scrapping of older ships a few years early may be another factor affecting the supply of capacity, as will slowing the construction of new ships in the Korean and Japanese yards.
Still, when your shipping fleet is growing at more than double the rate of the market, it is probably time to get worried. Or at least splash a little more scotch over your rocks.