Dry bulker newbuild activity slows as uncertainty clouds outlook
Contracting was 70% below the yearly average over the past three months, according to BIMCO
An unclear earnings outlook, fuel uncertainty and high newbuilding prices have dampened owners’ appetite for new orders
NEWBUILDING contracting in the dry bulk shipping sector has plummeted over the past three months because of declining freight rates, an uncertain future market and high asset prices.
According to BIMCO shipping analyst Filipe Gouveia, new orders placed in September to November were 70% below the yearly average. He expects total contracting in 2024 to fall short of 2023 levels.
The pullback in newbuilding activity comes on the heels of weakening market conditions in recent months. After a strong performance for most of the first three quarters of 2024, dry bulk rates started declining.
The Baltic Dry Index, which measures global dry bulk spot freight, fell 15% in October from September’s level. It slid further in November to close the month 16% lower year on year.
Gouveia attributes the rate decline to softer Chinese commodities imports and a recovery in Panama Canal transits easing tonnage demand.
Uncertainty about future market trends has also dampened shipowners’ appetite for new orders, with concerns about slowing demand in coming years as coal shipments peak and iron ore trade stalled by steel mills increasing scrap use.
There is also uncertainty around future fuel options for newbuilding and whether infrastructure will support new fuels at ports worldwide. Owners are wary about placing orders before fuel choices crystalise.
While newbuilding prices have held stable, values for five-year-old ships have declined 7% since August as conditions weakened. With secondhand tonnage now comparatively cheaper, “building a new ship becomes less attractive”, said Gouveia.
Nonetheless, asset prices overall remain lofty, with five-year-old bulkers still selling for 90% of newbuilding costs on average. Competition for shipyard slots from other vessel sectors has kept the pricing high.
Capesizes were the only vessel class to see higher newbuilding orders in 2024, with contracting up 42% in capacity terms. Panamax and supramax orders fell but remain the top contracted classes by number and capacity.
Despite the pullback, Gouveia says the orderbook stands at a moderate 10.4% of the fleet. He expects newbuilding activity to eventually rebound as emissions regulations drive fleet renewal over the next decade.
