Slashing Capacity the Only Way to Achieve Stability for Box, Dry Bulk Markets: Moore Stephens

Richard Grenier says the dry bulk sector will probably have to reduce the newbuilding orderbook and increase ship recycling in 2016.

While acknowledging the good performance of the tanker markets in 2015, Moore Stephens believes slashing capacity is the only way to achieve stability in the dry bulk and container ship sectors.

Richard Grenier, partner and maritime specialist for the international shipping consultant, writes that although most people blamed the record December drop in the Baltic Dry Index on China's reduced consumption levels, "Nevertheless, the dry bulk sector will probably have to reduce the newbuilding orderbook and increase ship recycling in 2016 in order to restore the balance."

Since then, the Baltic Dry Index fell to a fresh all time low of 468 468 on January 6.

The partner goes on to note, "The same is true of the container ship sector, where reducing capacity is seen as the best way to drive up rates"; he predicts that 2016 will see a cap on new builds and more calls for ship recycling.

He adds that CMA CGM's recent move to buy NOL "is an indication of further consolidation; it would be no surprise to see more still in 2016."

Looking ahead further, Grenier says shipping overall will remain volatile and uncertain; he predicts an escalation in operating and regulation compliance costs as well as an increased interest in refinancing as a way to generate cash.

These factors combined compel him to conclude that now is a good time for investors, "if you have access to finance and a credible business plan, preferably one with the badge of green approval."

Moore Stephens in November predicted that vessel operating costs as well as hull and machinery insurance will rise by 3.1 percent and 1.9 percent in 2016 respectively.