Drewry Calls Dry Bulk Recovery Temporary

Drewry Shipping Consultants is warning against a false dawn in the dry bulk shipping sector.

The sector will have to dig itself in for a long recession, it said in its quarterly Dry Bulk Forecaster, which was published this week.

The London consulting firm said that although the steep decline in market indicators seems to have reached the bottom, the few signs of recovery in the dry bulk sector are mostly temporary, while the large number of orders for new ships will weigh the sector down for several years to come.

“There are encouraging signs in the market, but these are offering temporary relief rather than the promise of sustainable recovery,” said Jaya Banik, the editor of the new report, who said the lines need to trim the number of orders.

“Orders are being deferred or postponed but not cancelled in sufficient numbers,” she said.

Scrapping in 2009 will exceed the last five years put together, but deliveries will still be double that figure. Even though new ordering has come to a near-complete halt, the present order book promises fleet growth at an average annual 8.7 percent for the next five years. “Clearly that needs to be reduced significantly if we are to see any serious recovery prior to 2012,” Banik said.

Global government stimulus packages targeting infrastructure projects are expected to increase steel demand and there are some suggestions that this could mean as much as 200 million metric tons of extra demand worldwide.

But Drewry has calculated that the market would need five times that amount – or an extra 1 billion metric tons dry bulk demand per year – to use the services of all the new ships that are being built. These initiatives are concentrated in Asia and in developing countries. In Europe and the United States, the focus of government aid is on projects to encourage consumer spending.

Drewry expects seaborne trade in 2009 to be 6 percent lower than in 2008, as global GDP is expected to fall by 1.6 percent. This suggests that the economic effect on the global economy is multiplied four-fold in the dry bulk trade. It said this ‘multiplier effect’ is felt even more strongly when it comes to freight rates, which are down by more than 50 percent in nearly every segment of the dry bulk sector.