Dry Bulk Players Face Reality of Mass Scrapping, Lay-Ups as Baltic Dry Index Sinks to New Record Low of 303

Wednesday February 3, 2016

As with almost every other day in 2016 that came before it, today there was more bad news for Dry Bulk as the Baltic Dry Index fell another seven points to 303.

The sector's key benchmark has yet to make a single day of gains in 2016 and as been at a record low on every day bar one.

Average spot TC rates for capesize were back on the decline Wednesday, down $47 to $2,775 per day, and Average spot TC Supramax rates fell to $2,698 per day.

Panamax vessels' average spot TC rates however did rise $15 to $2,275 per day.

While the extraordinary fall of dry bulk rates has long been attributed to weak Chinese demand, owners and analysts alike seem to be coming to terms with the fact that the key issue here is that there are simply too many ships.

Way too many ships; over 1,400 too many according to some.

The reality, then, appears to be that there simply is not going to be enough demand to support the current dry bulk fleet at any meaningful point in the future, and that scrapping or lay-up's are the only answer.

"If this kind of trade climate prevails, ship owners will have no option but to shut down vessel operations," Daniel Chopra, managing director of Mumbai-based shipping agency Elektrans, told Business standard.

"I don't see that situation too far, may be in the next three to six months owners may have to take such a call."

There is still a cost to laying-up a vessel though, a cost owners would rather avoid, and so Chopra says that for right now many vessel owners continue to look for business.

Others believe that only scrapping, not lay-ups, are the answer. 

"Shutting down of vessel operations is not a solution to the problem, it is just stop-loss measure for shipping companies. Due to this, I do not see such decisions coming forth in haste," a shipping agent was quoted as saying.

"Shutting down also comes at a cost, so companies are going to be in the wait-and-watch mode as of now."

Some have even gone as far as suggesting to Ship & Bunker that some sort of forced scrapping mechanism should be implemented, be that through a state sponsored scrapping programme, or regulation changes on, say, insurance or environmental parameters, that would force older tonnage out of the market.

Last month Adrian Tolson, Senior Partner at 20|20 Marine Energy, told Ship & Bunker that declining fortunes in the Dry Bulk sector was making it "incredibly difficult" to provide credit to players so they can by bunkers.