New orders threaten dry-bulk recovery

A flood of orders for new vessels and slower growth in Chinese demand for commodities could derail a recovery in dry bulk shipping, industry leaders warn, keeping freight rates low and threatening a further shake-out among shipping firms.

As dry cargo shipping rates recover from 14-year lows touched in March, shipowners have splurged on a raft of new orders, taking advantage of cheaper prices, more fuel-efficient designs and money from private equity funds looking for a new home.

The rise in capacity comes at a time of slowing economic growth on the mainland, which has raised fears that its vast appetite for imported raw materials may start to wane.

"The ordering wave is indeed worrying," said Henning Oldendorff, chairman of Oldendorff Carriers, one of the world's largest dry cargo operators with about 400 owned and chartered ships. "If it coincides with a China slowdown and possible recession in the global steel industry, then freight rates could potentially stay low for many years to come."

He estimated some 35 million deadweight tonnes of new capacity was ordered during the first half of this year, well above the 22 million dwt ordered during the whole of last year.

More than 50 per cent of recently ordered tonnage was contracted at just a handful of mainland shipyards, figures from Norwegian shipbroker Fearnleys showed.

The moves come as average spot charter rates for large Capesize ships, capable of hauling more than 150,000 tonnes of iron ore or coal, have risen from the March lows to better than break-even at about US$13,000 a day, according to Clarkson Research Services.