Monthly Archives: October 2015

Why Large Shippers Are Obsessed with Shipping Market

In our last article, we said that dry bulk carrier market will see increasing influence of large shippers. Particularly, large shippers are exercising a powerful influence on the shipping market mainly by chartering ships instead of owning them.

To be specific, large shippers prefer to charter rather than own ships, because they see less financial risk in chartering ships by taking advantage of such hedging techniques as FFA than in making large-scale investments to own ships.


Continued oversupply in the global dry bulk carrier market

Then, why is it that large shippers actively engage in and are increasingly obsessed with dry bulk carrier market? The reason is that while the demand from those countries that consume raw materials produced by large shippers is inching closer to its limit, production by the countries is getting bigger and bigger, thus aggravating oversupply.

Just as the continued oversupply in the global dry bulk carrier market has led to the long-term depression in the shipping market, iron ore and coal, which take up over 50% of the global demand for dry bulk carriers, continue to see their prices tumbling due to aggravating oversupply.

Iron ore price

Five years iron ore price history (source:

As for iron ore, it sees a sluggish demand from China, the world’s biggest consumer, as the country’s economic growth is slowing down. Moreover, China’s policy that protects its companies (by requiring that maximum 20% of raw materials be made in China) limits additional import of iron ore from overseas. Last year, China imported 77.5% of its supply of iron ore from overseas, which means that only 2.5% more can be imported this year.

Coal import registered the first decrease in history, as China strengthened its environmental protection policy and thereby banned the import and consumption of low-rank coal. While the transported volume of coal is expected to increase as India is increasing the portion of thermoelectric generation, it is not going to offset the reduction in the Chinese import of coal by a long shot.


Large shippers maintain their profit by reducing costs

With demand for major commodities slowing down or dwindling, large shippers now find themselves in a dire situation in which they have to keep their business profitable by reducing costs only through optimizing the entire process, which includes the production, storage, processing, transport, sales, and distribution of commodities.

This should mean that like shipping companies, large shippers for dry bulk carriers have no other choice than to strive to remain competitive through cost reduction. Exactly for this reason, Brazil-based Vale has continuously worked to have the Chinese ports directly served by its 4000,000-DWT iron ore carriers.


Looking ahead, we expect that in dry bulk carrier market, large shippers will continue to engage in the shipping market by adopting whichever will be an advantageous method between owning or chartering ships, and this, in increasing degrees. MEIC(Maritime Exchange Information Center) data shows that as of February 2015, 126 (54%) of 234 successfully concluded contracts for Capesize ships involved the chartering by large shippers, which suggests the degree of their engagement in the market.

With large shippers increasing their engagement in the shipping market, what should shipping companies do? Shipping companies now find themselves in a situation in which they must do anything to reduce their costs. International shipping companies should consider pooling their dry bulk carriers. At the same time, they should explore various alternatives by managing their fuel costs through futures trade that exploits volatility in international oil prices or hedging risks by taking advantage of the FFA market, among others.


Author: Jeon Hyeong-jin, Shipping Market Analysis Center Director
Source: KMI Shipping Market Trend Focus, No. 247

Dry Bulk Market Sees Greater Influence of Large Shippers

In the current global dry bulk market, while large shippers exercise increasing influence, traditional shipping companies see their role shrinking. Large shippers have different strategies for owning and chartering ships, and more of them charter than own ships, thus exercising a strong influence on the shipping market.


Examples of large shippers chartering ships



The US-based Cargill, which is the world’s largest grain trader founded in 1865, is a global corporation that has expanded its business into food, energy, and financing and has its operations in 68 countries. Cargill not only accounts for 40% of the world’s grain distribution, but also exercises tremendous influence in markets for dry bulk carriers and shipbuilding, which are needed to transport grain as well as energy resources.

In 2012, the quantity of goods transported by Cargill amounted to 200 million tons (tantamount to 500 dry bulk carriers), and in 2013, the company chartered some 350 dry bulk carriers, thus wielding an enormous influence on the shipping market. Furthermore, Cargill is taking full advantage of Forward Freight Agreement (FFA) market, for the purpose of reducing transport costs and creating profits in shipping.




Switzerland-based Glencore is an Anglo–Swiss multinational commodity trading and mining company. It is a global corporation ranked 20th in the Fortune Global 500 list of the world’s largest companies. Chartering minimum 200 ships all the time, the company exerts such a significant influence on the shipping market.

Glencore also keeps in Singapore a subsidiary called ST Shipping, which, while not too large, has a great influence on the shipping market through chartering. Moreover, as the world’s largest supplier of steam coal, the company asserts a powerful influence on the freight rate for steam coal.




Brazil-based Vale operates 35 400,000-DWT Valemax vessels by owning them or chartering them on a long-term basis. In the period of 2007 to 2008 when freight rates were flying high, the company reduced its dependence on the short-term transport market and instead pursued economies of scale by owning or chartering ultra-large ships on a long-term basis.

As it had to cover a longer distance than Australia, a rival country in iron ore export, the company came to seek economies of scale using ultra-large vessels for the purpose of strengthening its export competitiveness. In other words, Vale’s strategy is to secure its profitability by reducing the cost for its entire supply chain with ultra-large ships.


Ship chartering expected to increase with a view to avoiding the financial risks of owning ships

Thus, large shippers prefer to charter rather than own ships, because they see less financial risk in chartering ships by taking advantage of such hedging strategies as FFA than in investing a huge money to own ships.



In fact, the Australia-based BHP, which spent a lot of money in ships, ended up with lower-than-expected rate of return and faced lower freight rates with too many ships in the market, had to give up its shipping business. So, we expect that more large shippers will opt to charter ships instead of owning them, which trend will exert greater influence on the shipping market.

In our next article, we will take a closer look at why large shippers want to increase their sway over the shipping market.


Author: Jeon Hyeong-jin, Shipping Market Analysis Center Director
Source: KMI Shipping Market Trend Focus, No. 237

Opening of New Suez Canal Creates Unfavorable Conditions for Shipping Companies

On August 6th, Suez Canal Authority (SCA) of Egypt opened New Suez Canal. New Suez Canal, of which the construction began last August, took a year and 8.4 billion dollars. New Suez Canal was built over a 72km sector that passes Ismalia, which comes in the middle of the old canal. As the addition of the new canal enables two-way passage in the canal, it will take much less time to go through it. 

New Suez Canal Map

New Suez Canal Map (


Effects from the opening of New Suez Canal

The Egyptian government expects that maritime logistics via Suez Canal will greatly expand as it takes less than half of what it used to take to pass through the canal. Also, it is forecast that ships passing through the old canal will double from currently 49 ships a day to 97 ships a day and the time it takes for a ship to pass through the canal will sharply decrease from currently 18 hours to 11 hours, while waiting time for ships will shorten considerably from currently 11 hours to 3 hours.

New Suez Canal Project

New Suez Canal Project (

The completion of New Suez Canal gave birth to the shortest maritime transport route that connects the Mediterranean, the Red Sea, Europe, and Asia. Furthermore, the Egyptian government plans to focus on New Suez Canal the creation of large industrial complex and logistics infrastructure, thus turning the new canal into a hub for trade and maritime logistics that connects Europe and Asia. However, because the construction took just one year by unreasonably shortening the originally planned construction period of 5 years and invested a huge amount of money in the project, New Suez Canal is expected to charge a far higher transit charge compared to the old canal.


Increased ship’s capacity will aggravate oversupply in shipping market

Now that New Suez Canal is completed, shortened transit time between Asia and Europe increases ship’s capacity on the supply side. In other words, the already serious oversupply between Asia and Europe, the opening of New Suez Canal is expected to further aggravate the situation.

Moreover, the operating cost for New Suez Canal is exorbitant compared to the old canal (SCA estimates the operating cost for the old canal to be 5 billion dollars and puts 12.5 billion dollars for New Suez Canal), which leads to prediction of a steeply raised transit charge for the purpose of withdrawing investment and ensuring profitability for the canal. This way, the operating costs for ships that pass through New Suez Canal will go up accordingly.

Still, daily 14 hours minus the combination of a ship’s transit time through New Suez Canal and its waiting time can cut down on charterage to be paid by shipping companies. Korea Shipowners’ Association forecasts reduction of 3,000 to 12,000 dollars per ship. However, considering the total number of days required for a voyage between Asia and Europe, we can hardly expect a big reduction in charterage.

With the opening of New Suez Canal improving the timeliness of services, shipping companies can seek to improve the quality of services and get what little reduction it may get in charterage. On the other hand, we fear a steep hike in transit charges and increased ship’s capacity.

Notably, while we can’t be sure how much more of ship’s capacity will be made available, we think that it will negatively affect the business for container ships operating between Asia and Europe.



Author: Jeon Hyeong-jin, Shipping Market Analysis Center Director
Source: KMI Shipping Market Trend Focus, No. 265