“Over the past three months, dry bulk newbuilding contracting has been 70% below the yearly average. Declining freight rates in recent months, a cloudy outlook and high newbuilding prices contributed to the slowdown, and contracting in 2024 will likely fall short of 2023 levels,” says Filipe Gouveia, Shipping Analyst at BIMCO.
Driven by healthy demand, the dry bulk market was strong throughout most of the first three quarters of 2024. However, in recent months, weaker Chinese import demand paired with a recovery in Panama Canal transits has impacted freight rates negatively. In October, the Baltic Dry Index (BDI) fell 15% month-on-month and after a further fall in November, the index has ended 16% lower than November last year.
In addition, shipowners are still facing significant market and regulatory uncertainty. Dry bulk demand growth could begin to slow already in the coming years as coal shipments peak and production of recycled steel increases, affecting iron ore shipments. Furthermore, significant uncertainty remains with regards to which alternative fuel a newbuild should use, and whether it will be available across different ports and regions.
“Since August 2024, prices for five-year-old ships have fallen 7% due to weaker market conditions, while newbuilding prices have remained stable. As second-hand ships are comparatively cheaper, building a new ship becomes less attractive. Nonetheless, asset prices remain high as a five-year-old second-hand bulk carrier is, on average, still selling for 90% of a newbuild,” says Gouveia.
Newbuilding prices have stayed high due to large orderbooks from the tanker, container and LNG sectors. These sectors have already contracted more ships than in 2023, competing for limited slots in shipyards. This is further contributing to uncertainty in newbuilding contracting in the dry bulk market, as larger ships contracted now may only be delivered in 2028.
Despite the longer delivery times for larger ships, capesize has so far been the only segment to see higher contracting in 2024 than in 2023, up 42% in terms of capacity. Panamax and supramax contracting decreased, although they remained the most contracted segments in terms of both capacity and number of ships.
“Despite the low contracting, the dry bulk orderbook remains at 10.4% of the fleet which is sufficient to ensure fleet renewal in a stable market. Furthermore, over the coming years contracting will inevitably see a rebound as the sector faces increasingly strict climate regulations. This could incentivise the recycling of older ships,” says Gouveia.
