Port Delays and Dry Bulk Rates
A sharp drop in port delays, set against the backdrop of weak trade demand, was the key factor behind the swift retreat in dry bulk freight rates seen in the second half of 2022. The decline was broad-based and counter-seasonal, with spot rates falling by an average of 30% compared to 21H2, leaving them down by roughly half compared to the year-earlier level. Bulker secondhand values fell more modestly, down an average of 15% in the second half of 2022, and they finished the year down 5-10% compared to their end-2021 levels.
Covid-related port delays were a key driver of the dry bulk market boom that lasted from early 2021 to mid-2022. During this period, we saw time spent in ports increase to a peak above 18.5 days per roundtrip voyage, up from a pre-Covid level of around 15 days. This contributed to a 7% decline in fleet productivity from 2019 through the middle of 2022, which was the main factor behind fleet utilization rising to an 11 year high in late 2021.
But time spent in ports fell back to just 16 days in the final quarter of 2022, leaving them just one day above the pre-Covid level. This led to a 3% increase in fleet productivity compared to the first half of 2022, which was more than the market could bear, especially given the weakness in trade demand. We estimate that global dry bulk trade fell by nearly 1% in 2022, with the iron ore trade seeing the biggest drop, as global steel production fell by 4% last year. Preliminary estimates also point to a decline in the grain and minor bulk trades last year. Although the global steam coal trade increased modestly in 2022, helped by a war-related increase in longer-haul European imports, that was insufficient to offset the declines in other trades.
In early 2023, dry bulk spot rates fell even further, with the Baltic Dry Index hitting its lowest level in nearly three years, and Cape rates plunging below operating cost levels. Part of this drop can be attributed to seasonal factors, and preliminary estimates show asset values remaining firm through January despite the sharp drop in rates.
While the impact of falling port delays has already played a significant role in bringing the dry bulk market back to earth, we expect delays to fall further over the next 12 months or so, helped by a decline in Covid-related delays and a corresponding easing of logistics disruptions.
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