Study says dry bulk sector in deep recession

PUBLISHED : Friday, 22 May, 1998, 12:00am
UPDATED : Friday, 22 May, 1998, 12:00am

Deep recessions typical of the 1970s and 80s appear to have returned temporarily to the dry-bulk market, a research report says.

The latest half-yearly Shipping Review & Outlook prepared by Clarkson Research said the market had descended into a deep trough, shattering the pattern of 'mini-booms' that had characterised the bulk markets for most of the 1990s.

The market perhaps should not be surprised by this as it had five years of rapid fleet growth and a dramatic reversal in demand initiated by the economic problems of Asia, it said.

The slower fleet growth of about 1 per cent this year, with even lower trade growth and tonne-mile demand possibly further hit by the weakness in Asia, left little room for short-term optimism, the report said.

Economic slowdown in the United States and the poor economic situation in Japan could only worsen the prognosis.

The report said shipping cycles came in different shapes and sizes, and each of the main shipping sectors - tankers, bulk and dry cargo - was at a different stage in its evolution.

The dry-cargo markets served by container ships also were in a downward spiral of lower freight and charter rates, despite very strong growth of supply and demand.

The report said the carriers had responded to this by restructuring the bigger global alliances and using larger vessels for their main-lane fleet operations.

Container and multi-purpose vessels each accounted for 18 per cent of shipbuilders' order books, and most were due for delivery this year. They would continue to cause supply-led weakness for freight and charter rates.

The tanker market was in good shape by comparison, with spot earnings, time-charter rates and prices all at or near their peaks, the report said, adding that the problem with a 'boom' market was that it had to end and the question was when.

The last cyclical upturn in the tanker market lasted six years, while this one was five years old.

Supply and demand were finely balanced at present, although demand looked set to weaken.

The expanding order book could lead to faster fleet growth in all sectors, the report said, adding that replacement demand to meet an expected rise in scrapping had been the driving force behind the tanker order book of late.