Bulk-shipping lines need to cancel half of the new vessels they have on order to ease a capacity glut and revive freight rates.
Bulk-shipping lines need to cancel half of the new vessels they have on order to ease a capacity glut and revive freight rates, according to shipbroker R.S. Platou ASA. ?If half the orderbook is never built, then we can keep the market fairly balanced,? Bjorn Bodding, a senior analyst at Platou, said today at a conference in Singapore. Even axing a third wouldn"t be enough to help rates recover before 2012, he added.
Bulk-shipping rates have tumbled 78 percent from a record last year as growth in the global fleet outpaces China"s demand for iron ore and coal shipments. The glut could worsen as commodity companies, such as Noble Group Ltd., build up their fleets.
?What worries me even more than the existing orderbook is seeing people ordering or about to order more tonnage,? said Andreas Sohmen-Pao, chief executive officer of ship operator BW Maritime. ?That"s stretching out the problem further.?
Noble Group, a Hong Kong-based supplier of raw materials, ordered five bulk carriers worth about $320 million in August. Vale SA, the world"s biggest iron-ore producer, plans to order 11 large bulk carriers, South Korean News agency Yonhap said on Oct. 7.
China Cosco Holdings Co., the world"s largest dry-bulk ship operator, canceled eight vessels in July after slumping to two straight losses on plunging rates.
Commodity carriers with a capacity of 291 million deadweight tons are on order worldwide, according to Drewry Shipping Consultants Ltd. That"s equivalent to 66 percent of the existing fleet.
A rebound in freight rates since April has encouraged shipping lines to grow their fleets, even as rates remain near breakeven levels. The Baltic Dry Index, a measure of commodity- shipping costs, has risen to 2,647 yesterday from 1,463 on April 8. With the index above 2,000 points, a portion of the more expensive vessels on order can be run profitably, according to DBS Vickers Securities analysts Chong Wee Lee and Ho Pei Hwa.
?This has led to resurgence in vessel deliveries and reduced demolition activities, thereby aggravating the industry"s oversupply,? the analysts wrote in an Oct. 5 report.
Dry-bulk ship deliveries increased 35 percent in the four months ended August from the preceding four months, they said. Scrapping fell 61 percent.
Shipping rates have also been boosted this year by government economic stimulus plans, including a 4 trillion yuan ($586 billion) package in China. Demand for iron ore and freight rates may begin to fall once these plans are completed, said Keith Denholm, director of PCL (Shipping) Pte.
?The levels that we are seeing today are just not sustainable,? he said. ?The question now is whether the private sector is going to be able to stand on its two feet without the assistance of the government stimulus packages.?