At the beginning of last year, no one expected anything but a collapse of the dry bulk sector. Owners of bulk carriers were pulling their hair out, trying to figure out what was happening to the market.
By that time, everyone already knew about the financial crisis but nobody suspected that it would pretty much stop the entire market. Freight rates fell sharply, while anchorages around the world were instantly filled up with unemployed vessels. According to LMIU, 1,002 bulk carriers were idle in January 2009.
Although very few people were willing to bet money on bulkers, it later turned out that they were right! An interesting combination of factors has propelled the dry bulk market which, even though it no longer offers rates in the 2007/2008 range, is still performing considerably better than expected.
Yet again, everyone's eyes were turned to China. Substantial increases in its imports of iron ore and steam coal not only offset other countries' cutbacks but also led to a 1% increase in the world's major bulk seaborne trade. This had a very positive effect on the VLOC, Capesize and also to some extent Panamax rates.
Smaller bulk carriers unfortunately had to sail through rougher seas. According to Clarkson, the minor bulk seaborne trade contracted by 11% last year, which kept freight rates depressed. However there are now signs of improvement which, combined with extensive scrapping and a relatively modest order book (compared to larger bulk carriers), has already led to higher rates within both the Handysize and Handymax segments.
A few other factors have also helped the market. All of them reduced the supply of vessels and thus better adjusted the market to the overall lower demand.
Port congestions decreased the availability of ships in the market. A combination of slippage, delays and cancellations of new contracts resulted in only 65.1 million DWT of bulk carriers (instead of the scheduled 119) hitting the water last year (Clarkson). According to DNV Market Intelligence, 388 bulk carriers - corresponding to 18 million DWT - have been cancelled since the market crashed.
There is still a positive sentiment in the market. Newbuilding prices have fallen by an average of 40-50%. Steel prices are expected to rise, which is likely to drive newbuilding prices up again. Such developments attract owners (especially asset players) to place new contracts with yards. According to IHS Fairplay, 125 bulk carriers (corresponding to 9.9 million DWT) were contracted within the first four months of this year. This is a significant improvement, especially when compared to the beginning of last year, when the contracting activity was almost non-existent.
DNV has managed to secure 33 new bulk carrier contracts (1.9 million DWT). This represents 26.4% of the number of new bulk carriers contracted in 2010. In addition, another eight existing DNV contracts were converted from products tankers to bulk carriers.