Dry bulk cargo benefits from the interconnection of ocean transportation, and the high demand for one type of ship may affect the supply and demand fundamentals of different types of ship types. Recently, there has been a strong demand for container transportation, and its spillover effects are boosting the fundamentals of dry bulk shipping, pushing its spot freight rates to the highest level since the 20th century.

Transfer effect between ship types

Market effects are mainly transmitted from one shipping sector to another in three ways:

One is that ships have changed the type of cargo loaded, such as coated oil tankers that can transport both finished oil and crude oil;

Secondly, the cargo has changed the type of transportation vessel, such as when the rent of dry bulk carriers increases, some grain shippers turn to container transportation;

Thirdly, Asia's shipbuilding capacity is in short supply. The most extreme example is the shipping supercycle from 2003 to 2008, when demand for new container ships, bulk carriers, oil tankers, and LNG carriers surged simultaneously, with each type competing for capacity with other ship types, thereby increasing the cost of new shipbuilding in each sector.

Currently, spillover effects in the second and third categories have emerged.

Container cargo begins to shift towards bulk carriers

John Wobensmith, CEO of Genco Shipping&Trading, stated that dry bulk shipping has achieved its best start in 10 years this year.

Eagle Bulk CEO Gary Vogel recently stated that the 45000-60000 dwt Supramax model has begun to benefit from the spillover effects of consolidation. Recently, the company shipped bagged cement and other goods from China to Guatemala, and then bagged fertilizers to Peru and Chile. This route is usually the outbound route for container ships, and for dry bulk cargo transportation, it is a return route.

The larger the return traffic volume, the higher the capacity utilization rate of the round-trip route. I am very interested in everything in the current container market because it has a profound impact on our freight rates and trading patterns.

Container ship orders squeeze new orders from other ship types

Hugo DeStoop, CEO of Euronav, the oil tanker owner, said that new orders for container ships and LNG carriers have squeezed the space for new orders for oil tankers.

The dry bulk sector has also been affected. Loukas Bomparis, President of Safe Bulkers, said, "Most shipyards are already at full capacity, filled up by ship types such as containers and oil tankers

Vogel pointed out that dry bulk cargo ships hold orders at a historic low, accounting for only 5.6% of the existing fleet. The new orders in the first quarter of 2021 were 33% lower than the quarterly average level in 2020.

The cost of new ships has also increased. Currently, the cost of Ultraaxes ship types for delivery of 60000-65000 DWT in the second half of 2023 and beyond is $27 million to $29 million.

Due to the accelerated ordering speed of other shipping sectors, the production capacity of shipyards has "rapidly shrunk". In the past few months, orders for large container ships have set records, coupled with orders for other large ships such as VLCC, and shipyards' production capacity has quickly been filled up by these longer and more attractive orders.

Spillover effect of consolidation transportation