Shipping Industry Analysis

The global shipping industry can be broadly classified into wet bulk (like crude and petroleum products) and dry bulk (like iron ore, and coal). Commodity prices may be soaring on record demand for raw materials but so too are the prices for shipping these goods around the world.

Shipping is an international business and the freight rates and earnings are closely related to world economic growth and global demand and supply trends.

Where is the demand for dry bulk transportation coming from?
Global steel demand is forecasted to grow by 5-6% in the coming year, with China's steel exports alone expected to increase by 10-15% and iron ore import expected to increase by 40-50 million tons. With a large number of coal fired power plants becoming operational in China, India and Europe, coal trade is also expected to increase. Strong demand for raw materials in China and India, whose rapidly expanding economies have fuelled the current commodity boom, has stoked demand for the transportation of these goods.

With all this, the dry bulk trade is expected to remain buoyant in the near future. The buoyancy in the dry bulk market is evident from the freight rates and vessel values which have reached alarming levels during the last six months. This week, the Baltic Exchange’s dry freight index, a composite of prices for shipping dry commodities, hit a record high of 9561. The index has risen more than 50% this year.

What about the supply side?
On supply side, the availability of ships plays crucial role in determining tanker freight rates. All the 6600 vessels on the sea are carrying freight on the sea. There is a lot of demand for these vessels. Port congestion in Australia and Brazil. Some ships have to wait for offloading and loading for about 25 days. Port congestion has led to delays and extra costs that shipping companies are passing on to customers. This restricts the fleet availability on the supply side, creating a further upside in their demand. And the new capacity of ships is not expected in the near future. Ship building can cost anything between USD 20-200 million each and can take one to two years to deliver.

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