Ocean transportation is interconnected, and the extremely high demand for one type of ship may affect the supply and demand fundamentals of different types of ships. The spillover effect of the recent boom in container shipping demand is boosting the fundamentals of dry bulk shipping, pushing up its spot rates to the highest level since the 20th century.
Transfer effect between ship types
The market effect is mainly transmitted from one shipping sector to another in three ways:
First, the ship has changed the type of cargo loaded, for example, a coated tanker can transport both refined oil and crude oil;
The second is that the cargo has changed the type of transport ships. For example, when the dry bulk carrier rent increased, some grain shippers turned to container transportation;
The third is that the shipbuilding capacity in Asia is in short supply. The most extreme example is the shipping supercycle of 2003-2008, when demand for new container ships, bulk carriers, tankers and LNG carriers surged at the same time, each competing for capacity with the others, raising the Newbuilding costs for each sector.
Currently, spillover effects of the second and third types have emerged.
Containerized cargo begins to divert to bulk carriers
Genco Shipping & Trading CEO John Wobensmith said: “Dry bulk shipping is off to the best start in 10 years this year.
Eagle Bulk CEO Gary Vogel said recently that the 45,000-60,000 dwt Supramax has begun to benefit from the spillover effect of container shipping. The company recently shipped bags of cement and other goods from China to Guatemala, and then bags of fertilizers to Peru and Chile. This route is usually the outbound route for container ships and the return route for dry bulk shipments.
The larger the return volume, the higher the capacity utilization rate of the round-trip route. I'm interested in everything that's going on in the container market right now because it has a profound impact on our rates and trading patterns.
Container ship orders squeezed new orders for other ship types
New orders for container ships and LNG carriers have squeezed room for new orders for tankers, said Hugo DeStoop, CEO of tanker owner Euronav.
The dry bulk sector was also affected. Loukas Bomparis, president of Safe Bulkers, said: "Most shipyards are at full capacity and are being filled with container, tanker and other vessel types."
Vogel pointed out that the order book for dry bulk carriers is at a historically low level, accounting for only 5.6% of the existing fleet. New orders in the first quarter of 2021 were 33% lower than the 2020 quarterly average.
The cost of new ships has also risen. Currently, Ultramaxes of 60,000-65,000 DWT for delivery in the second half of 2023 and beyond are priced at $27-29 million.
The capacity of shipyards “shrinks rapidly” as orders in other shipping sectors pick up. Record orders for large container ships over the past few months, coupled with orders for other large vessels such as VLCCs, have quickly filled shipyards’ capacity with these longer and more attractive orders.
