The fires of globalization are stoked by raw materials, not Hello Kitty bags, Barbie dolls and die-cast Ferraris.
A study by Dutch research outfit Dynamar makes an interesting point. Container shipping companies are generally credited with carrying the goods that enabled the trading network to span the globe.
Yet even though the products the box boats carry are made, assembled or finished in China and the other export-based economies of Asia, the materials used in their production are dug from the ground all around the world.
Iron ore and coking coal from Brazil, Australia, India and the US. Crude oil from Venezuela, Indonesia and the Middle East. Cotton from India, the US and Pakistan. A host of raw materials from Africa.
Without the breakbulk operators, the container ships would have nothing to stuff in their equivalent units.
Container ships with their neat boxes stacked high sailing into port cities have always been the clean face of shipping. The Brad Pitts of the business (although with the surcharge shenanigans and the overcapacity mess they are probably better described right now as the Tiger Woods of the industry).
But the point is that the bulkers and tankers have been quietly getting on with the job of providing fuel for the globalization fire. China’s unquenchable thirst for raw materials improved the bottom lines of many bulk operators and charter rates went through the roof before the financial crisis.
The GFC, as the Aussies call it (Global Financial Crisis), put the brakes on the bulk business last year making it one to forget, but utilization is picking up and charter prices are again moving in the right direction.
Unlike the container business that newbuilt itself to a standstill, bulk shippers took a more conservative approach, and the result is that much of the fleet is over 25 years old. According to Dynamar, the bulk ship orderbook is currently at 25 percent of the global fleet. But if the ships older than 25 years were scrapped today, the orderbook would only replace 70 percent of the lost space.
That is not such a bad position to be in. China is signing gigantic contracts with raw material suppliers, and this will help keep bulkers full for the inbound leg. The country also exports materials such as bauxite, coke, fluorspar, silicon carbide and zinc, although quotas on the exports are limiting volumes.
But trade issues aside, globalization has created fierce competition for access to commodities and with most of the world’s manufacturing being done in Asia, breakbulk shipping lines are going to be in for a rosy few years.