Kevin Hazel, Partner and Manager, Shipping Economics, on Marsoft’s current expectations for this sector.
With dry bulk freight rates soaring to an 11-year high and seemingly hitting new peaks every day in mid-June, thoughts of a prolonged boom are starting to seep into the mindset of some market participants. So, are these thoughts justified? Is there any chance we can see these levels sustained for say, another year?
We think it’s unlikely, though by no means impossible. The gains seen in the first half of 2021 have been driven by a surge in trade demand, as the global economy has come roaring back from the depths it was in a year ago. The combination of strong trade growth and relatively modest fleet growth has played an important part in the dry bulk market’s recovery. But there is more to the story. Specifically, port delays have risen to an all-time high, with delays at Brazilian ports especially high; mostly at the country’s iron ore ports but also at its grain ports. The rise in port delays has led to a significant drop in fleet productivity, which has added fuel to a dry bulk market that was already starting to heat up.
Going forward, we think it is very likely that both of the drivers of the recent boom will ease. With global economic activity now mostly back to its pre-pandemic level, further growth is expected to moderate, and trade demand should follow suit. In addition, we expect port delays to fall back towards their historical norms over the coming year, partly due to slower trade growth, and partly due to logistical issues being resolved. Although fleet growth is projected to slow as well over the coming year, this slowdown should be more than offset by slower trade growth and reduced port delays, leading to a decline in fleet utilization and a significant correction in dry bulk rates.