Goldman Sachs can't see an end to the dry cargo downturn until at least 2020 on a glut of vessels and stalling cargo growth, says a report in Bloomberg.
Overcapacity and low fuel prices are bound to keep low dry bulk shipping freight rates for the rest of the decade or even longer.
Steep drops in Asian shipping rates have also added to fears about slowing trade, as a fall in export orders from countries across the region depresses demand for ships.
With the daily charter rates dwindling, the bank predicts that the average utilization rate of the dry bulk shipping fleet will decline to 70 percent over 2015 to 2019 from the previously reported 90 percent during the previous five years.
“Faced with the risk of leaving vessels idle over long periods, we believe that ship owners will continue to charge low charter rates. This compounds the impact of lower fuel prices, resulting in a period of cheap freight that should last until older vessels have been scrapped in sufficient numbers to balance the market. We expect low freight rates to persist at least until the end of the decade,” the bank is quoted by Reuters as saying.
The US bank noted that the daily charter rate for a capsize vessel has fallen from a high of over $100,000 in 2008 to below $10,000, while the average utilization rate of the dry bulk shipping fleet is set to decline from around 90 percent between 2008 and 2010 to 70 percent over 2015 to 2019.
Goldman cited slumping rates for hauling iron ore from Western Australia to China, described as the busiest dry-bulk trade route in the world. The cost of shipping one ton sank from $44 at the peak in early 2008 to $4.40, it said.
People ordered too many ships on the basis that there was a lot of supply of iron ore coming on, Ian Roper, a Singapore-based commodity strategist at CLSA Ltd., said. There’s still this structural overcapacity in dry-bulk shipping. That’s definitely not good news, he added.
The downturn of the Baltic Dry Index (BDI) during the first quarter of 2015 has seen the BDI reach a new record low at 522 points leaving dry bulk vessel owners in dire conditions, especially since there were no signs of recovery.