BDI, which ran 11,000 in 2008, has long fallen down to 1,000, but there is no sign of the business improving. The biggest reason should be the surfeit of vessels, which is aggravated by delivery of those ships ordered in good times in the face of the shrunken demand in this bad economy.
So, in this issue, we will check the bulk carrier trend that draws a lot of attention from bulk shipping companies in a bad economy and bring light on features that may catch the attention of shipping companies.
1. Latest trends in bulk shipping market
1) Strengthened environmental regulation
- Regulation of GHG emissions from ships
In 2013, IMO announced a global regime for reduction of GHG emissions from the ships and thereby made it mandatory to reduce carbon dioxide by 30% by 2015. Announcing its plan to restrict the operation of those ships that come below the standard in Energy Efficiency Design Index (EEDI), the IMO regime made it clear that it would apply strict screening on GHG emissions from the ships.
- Expanding SECA
Since the Baltic region was selected, Sulfur Emission Control Area (SECA) has included the North Sea, the English Channel, and EU ports, increasing its coverage year after year. With not only areal expansion but also strengthening regulation of sulfur emissions, SECA has loomed as one of the regulations that deserve shipping companies’ attention.
- Competition for Eco Ship
As Eco Ship certification spreads around the world, technological competition for Eco Ship is accelerating among countries. Europe is developing solar ships and the US is developing vessels based on wind power, while other countries took much interest in eco-friendly fuels and ship engines.
2) Increased interest in upgrading the efficiency of ship operation
- Protracted period with low freight rates
Excess supply of freight space makes it difficult to predict when freight rates will perk up, while the global economy stands still and thus keeps lowering freight rates. Since this also creates a trend for preferring long-term contracts, we expect that low freight rates will be an extended experience.
- Persistence of high oil prices
As environmental regulation strengthens, more and more shipping companies use high-priced fuel, while oil prices continue to go up.
- Reduced cost of ship operation
Fuel is a major factor that takes up about 20% of a ship’s operation cost, and so shipping companies are paying a lot of attention to fuel cost reduction through reduced-speed operation.
2. Predicting future bulk shipping market
Starting in 2015, the market will begin to show signs of recovery, and from 2017, it will have a full-blown recovery. Following is market forecast for different vessel types.
- Iron price will stabilize lower with increased production from Australia and Brazil.
- No hike factors with excess supply amassed for last 5 years.
- Iron price largely depends on the economic policy and the growth rate of China, which depends hugely on imported iron ores.
- Since transatlantic freight space is swinging low, a European economic recovery should have major a influence on the market.
- India’s coal import increases by 10%.
- While 25% of fuel coal will be taken up by maritime transport, this will take up only 12% of the entire increase in ships.
- While cargo volume increases, increasing available vessels make it difficult to expect freight rate recovery.
- Vessel type that is the most sensitive to global economy.
- Ordering too many vessels is feared as there is an increasing demand for Eco Ship.
- There is a growing demand for coal in China and India, and a growing demand for nickel and bauxite in China.
=> Pointing to a short-term recovery in freight rate.
- Oversupply of freight space forecasts continuation of overall depression.
- Freight rate is expected to rise after 2015 as oversupply is mitigated.
- Overall, the market will be better for smaller than larger ships, in the ocean than coastal waters, and in Asia than in Europe and North America.
※ source : Korea Maritime Institute
3. Increased interest in vessel management system that can flexibly respond to changing bulk market.
As bulk carrier market is now in an extended depression, shipping companies need to adapt to the change in maritime environment from competition in size/freight/speed to competition for low cost/eco ship. Therefore, carriers need a high-level vessel management system and should be capable of smartly responding to the change.
1) Supporting effective management of fuel
2) Analyzing volatility in ship operation through management of phase-specific calculation and analysis of voyages.
3) Providing real-time location data to strengthen competitive of a ship in operation.
Posted by Seung-Hee Seo, a Business strategist, who has made business plans and researched the maritime industry including container and bulk shipping.
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