Ocean transportation is interconnected, and the very high demand for one type of ship may affect the supply and demand fundamentals of different types of ship. The spillover from the recent boom in container shipping demand is boosting the fundamentals of dry bulk shipping, pushing spot rates to their highest level since the 20th century.
Transfer effect between ship types
Market effects are transmitted from one shipping sector to another in three main ways:
The first is that ships change the type of cargo they carry, such as coated tankers that can transport both refined oil and crude oil;
The second is that the cargo has changed the type of transport ship, for example, when the rent of dry bulk carriers rose, some grain shippers turned to container shipping;
Third, Asia's shipbuilding capacity is in short supply. The most extreme example was the shipping supercycle of 2003-2008, when demand for new container ships, bulk carriers, tankers, and LNG carriers surged at the same time, each competing for capacity with the others, driving up the cost of building new ships in each sector.
The second and third types of spillovers are already occurring.
Container cargo began to shift to bulk carriers
John Wobensmith, CEO of Genco Shipping & Trading, said: "Dry bulk shipping has had its best start to the year in 10 years.
Eagle Bulk CEO GaryVogel recently said that the 45,000 to 60,000 DWT Supramax has begun to benefit from the spillover effect of consolidation. The company recently shipped bags of cement and other goods from China to Guatemala, and bags of fertilizer to Peru and Chile. This route is usually the outbound route for container ships and the return route for dry bulk shipments.
The greater the return volume, the higher the capacity utilization rate of the round-trip route. I'm interested in everything that's going on in the container market right now because it has a profound impact on our rates and trading patterns.
Orders for container ships squeeze new orders for other ship types
HugoDeStoop, chief executive officer of oil carrier Euronav East, said new orders for container ships and LNG carriers were squeezing the space for new orders for tankers.
The dry bulk sector was also affected. Loukas Bomparis, president of Safe Bulkers, said: "Most shipyards are at full capacity, filled with containers, tankers and other ship types."
Vogel noted that orders for dry bulk carriers are at historic lows, accounting for just 5.6 percent of the existing fleet. New orders in the first quarter of 2021 were 33% below the 2020 quarterly average.
The cost of new ships has also risen. Currently, the 60,000-65,000 DWT Ultramaxes for delivery in the second half of 2023 and beyond cost $27-29 million.
Shipyards' capacity is "shrinking rapidly" as orders in other shipping sectors pick up. The past few months have seen record orders for large container ships, coupled with orders for other large vessels such as VLCCS, and shipyards are quickly filling capacity with these more attractive orders that take longer to build.
