Dry Bulk Market: Orderbook to fleet ratio drops to lowest level of the past 14 years, below 10%

Ship owners have halted the demolition of older dry bulk vessels during the second half of the year, as freight rates improved. It’s a pattern noted every time a similar occurrence transpires. However, this time around fleet growth could actually be curbed, thanks in part to the fact that no newbuilding orders have been placed for dry bulk carriers this year, while slippage and cancellations of existing orders still hover close to 40%. “The oversupply issue in the dry bulk market has been over discussed during the years and especially so during the past 12 months, and as the industry starts to better manage further excess in the tonnage supply all eyes are focused on the rate of scrapping being noted as well as the orderbook to ratio. In terms of the former we have had quite the disappointment over the past 4-5 months, as the number of vessels being recycled has diminished considerably compared to the monthly levels we were seeing in the first half of the year”, said Allied Shipbroking in its latest weekly report.

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According to Allied’s George Lazaridis, Head of Market Research & Asset Valuations, “being that the freight market has improved considerably and most owners of older tonnage are now looking to recover some of their losses they were noting earlier in the year, it is hard to see that we would see a quick rise in the number of vessels being sent to the beaches of the Indian Sub-Continent. As such the focus has primarily turned to the orderbook and delivery schedule at hand. With hardly any new orders having been placed during the course of the year and with newbuilding deliveries coming in quick in numbers during the same period (despite the significant amount of slippages and cancellations which is still hovering at a rate of around 40%), the orderbook to fleet ratio has made one of its fastest drops in recent history. At the very start of the year we were looking at an orderbook to fleet ratio of roughly 15.92% for all dry bulkers above 20,000 dwt”.

Based on Allied’s data, “at the start of November this ratio had dropped to 9.79%, while it’s important to note that it did so with an almost negligible change to the number of vessels in the “active” fleet. Beyond the fact that it has now broken through the psychological point of 10%, what makes this figure even more noteworthy is that it the lowest it’s been in over 14 years. The last point in time when we had a ratio at similar levels was in 2002, after which point it quickly climbed at an extraordinary rate to reach its peak in September of 2008”.

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“All this however should be taken cautiously. Just because we have managed to reach an orderbook to fleet ratio that was last noted back in 2002 (a point in time which most owners see as having been one of the few perfect entry point in recent history), nor by the fact that it’s gone below 10% of the current fleet does it create a good enough argument to restart another ordering spree. In any case the secondhand market offers considerably better opportunities out there in terms of pricing compared to what you could possibly find being offered by shipbuilders at the moment”, said Lazaridis.

According to Allied’a analyst, “the positive point to take is that it will become ever easier to manage the oversupply issue moving forward and given that a lot of the orders currently set for 2017 and 2018 delivery will likely face delays and cancellations of their own, while at the same time the new regulations coming into force will likely continue to push older vessels to exit the market at even younger ages then would have otherwise been anticipated, there is a real opportunity that we may reach the tipping point much sooner than we would have otherwise believed. Sure you may say that trade demand is still fairly shaky, unstable, and uncertain as to its potential moving forward, but if we manage to keep the fleet growth to only marginally positive levels or even negative, rates should surely start to reflect this to some degree (even if it may be at a gradual pace with its seasonal ups and downs) within 2017”, concluded Lazaridis.

Source: Nikos Roussanoglou, Hellenic Shipping News Worldwide