Carrier Industry Overview
marine industry is an essential link in international trade,
with ocean-going vessels representing the most efficient, and
often the only method of transporting large volumes of basic
commodities and finished products. In 2012, approximately 4
billion tons of drybulk cargo was transported by sea, comprising
more than one-third of all international seaborne trade.
Drybulk cargo is shipped in large quantities and can be easily
stowed in a single hold with little risk of cargo damage. Drybulk
cargo is generally categorized as either major bulk or minor
bulk. Major bulk cargo constitutes the vast majority of drybulk
cargo by weight, and includes, among other things, iron ore,
coal and grain. Minor bulk cargo includes products such as agricultural
products, mineral cargoes (including metal concentrates), cement,
forest products and steel products and represents the balance
of the drybulk industry. In terms of seaborne trade volumes
(and the shipping ton-miles generated), the dominant influence
is that of the major bulk trades, which include coal, iron ore
Iron ore is used as a raw material for the production of steel
along with limestone and coking coal. Steel is the most important
construction and engineering material in the world. In 2012,
approximately 1.1billion tons of iron ore was exported worldwide,
with the main importers being China, the European Union, Japan
and South Korea. The main producers and exporters of iron ore
are Australia and Brazil.
Coal is an abundant commodity. At current production rates,
coal reserves would provide approximately 200 years of supply,
compared with 41 years for oil and 67 years for natural gas.
In addition, coal is mined in more than 50 countries with no
world dependence in any one region. Coking (metallurgical) coal
is used to produce coke to feed blast furnaces in the production
of steel. An increase in seaborne transportation of coking coal
has been primarily driven by an increase in steel production.
The increase in import activity has occurred in a number of
regions. Currently, Asia and Western Europe are major importers
of coking coal. Australia and Indonesia provide a significant
amount of coking coal to Asia, while South Africa and the United
States are major sources for Western Europe.
Major importers of steel products are China, the United States
and South East Asia. Major exporters of steel products are Japan,
Russia and Western Europe. Handymax and Handysize vessels are
typically preferred for transporting steel products. For voyages
that span the Atlantic and Pacific Ocean, Handymax vessels are
frequently used on shorter routes involving intra-Asian and
Steam coal is primarily used for power generation. A number
of developing countries have decided to capitalize on the recent
dramatic increase in oil and gas prices to build new power plants
that utilize coal. This has resulted in significant growth in
the steam coal trade. The most dramatic growth has occurred
in China and Indonesia, both of which have increased their export
capacity in the intra-Asian market. Furthermore, in the global
market for steam coal, China is a major importer and Australia
is the largest exporter. Asian coal is primarily traded in Capesize
and Panamax tonnage. European countries tend to import steam
coal from exporters in the Atlantic region using Panamax vessels.
Grains include wheat, coarse grains (corn, barley, oats, rye
and sorghum) and oil seeds extracted from different crops such
as soybeans and cottonseeds. In general, wheat is used for human
consumption, while coarse grains are used as feed for livestock.
Oil seeds are used to manufacture vegetable oil for human consumption
or for industrial use, while their protein-rich residue is used
as a raw material in animal feed.
Total grain production is dominated by the United States. Argentina
is the second largest producer followed by Canada and Australia.
In terms of imports, the Asia/Pacific region (excluding Japan)
ranks first, followed by Latin America, Africa and the Middle
East. The principal vessel classes used in the grain trade are
Panamax and Handymax.
Over the past decade, seaborne transportation of forest products
has increased by approximately 30 million tons. South America
has increased its export market share, with an emphasis on the
export of wood pulp and lumber. The emphasis on wood pulp and
lumber export can be tied directly not only to the increase
in wood pulp and sawmill capacity, but also to plantations that
have taken advantage of their large wood reserves, which coincided
with higher growth of such raw materials. The largest importers
of wood products are China, Japan, the United States and Western
Europe. The positive trend in the transportation of wood products
has benefited Handymax and Handysize vessels, which are the
vessels typically employed to transport these products.
The balance of drybulk trade is represented by agricultural
cargoes, bauxite and alumina, fertilizers and cement. Minor
bulks are typically transported by smaller vessels of less than
The demand for drybulk carrier capacity is determined by the
underlying demand for commodities transported in drybulk carriers,
which in turn is influenced by trends in the global economy.
Seaborne drybulk trade increased by slightly more than 2% on
an average annual basis during the 1980s and 1990s. However,
this rate of growth has increased dramatically in recent years.
Between 1999 and 2006, trade in all drybulk commodities increased
from 2.0 billion tons to 2.5 billion tons, an increase of 35%
Generally, growth in gross domestic product and industrial production
correlates with peaks in demand for seaborne transportation.
Certain economies will act from time to time as the "primary
driver" of the drybulk carrier market. In the 1990s, Japan
acted as the primary driver due to increased demand for seaborne
trade and growth in Japanese industrial production. China has
been the main driving force behind the recent increase in seaborne
drybulk trades and the demand for drybulk carriers.
The extent to which increases in drybulk trade have affected
demand for drybulk carriers is reflected in estimates of ton-mile
demand. Ton-mile demand is calculated by multiplying the volume
of cargo moved on each route by the distance of the voyage.Drybulk
carriers can be the most versatile element of the global shipping
fleets in terms of employment alternatives. However, drybulk
carriers seldom operate on round-trip voyages. Rather, the norm
is port-to-port liner service and triangular or multi-leg voyages.
This means that every voyage has a ballast leg that must be
paid for by the laden or revenue earning leg. Hence, trade distances
assume greater importance in the demand equation.
three largest commodity drivers of the drybulk industry, iron
ore, steam coal and grains, are all affected by seasonal demand
fluctuations. Steam coal is linked to the energy markets and
in general encounters upswings towards the end of the year in
anticipation of the forthcoming winter period as power supply
companies try to increase their stocks, or during hot summer
periods when increased electricity demand is required for air
conditioning and refrigeration purposes. Grain production is
highly seasonal and driven by the harvest cycle of the northern
and southern hemispheres. However, with four nations and the
European Union representing the largest grain producers (the
United States, Canada and the European Union in the northern
hemisphere and Argentina and Australia in the southern hemisphere),
harvests and crops reach seaborne markets throughout the year.
The worldwide drybulk carrier fleet subdivides into four vessel
size categories, which are based on cargo carrying capacity.
over 80,000 dwt. While this is the traditional definition of
a Capesize bulk carrier, in terms of deadweight, the sector
is changing. As per the orderbook detailed below, there have
been a number of new super-Panamaxes ordered, which are 82,000
dwt to 85,000 dwt, but which are able to transit the Panama
Canal with a full cargo. Thus, a more modern definition of Capesize
would be based on vessels over 100,000 dwt. The Capesize sector
is focused on long haul iron ore and coal trade routes. Due
to the size of the vessels there are only a comparatively small
number of ports around the world with the infrastructure to
between 60,000 dwt and 80,000 dwt. Panamax vessels, defined
as those with the maximum beam (width) of 32.2 metres permitted
to transit the Panama Canal, carry coal, grain and, to a lesser
extent, minor bulks, including steel products, forest products
between 40,000 dwt and 60,000 dwt. The Handymax sector operates
in a large number of geographically dispersed global trades,
mainly carrying grains and minor bulks including steel products,
forest products and fertilizers. Vessels less than 60,000 dwt
are built with on-board cranes that enable them to load and
discharge cargo in countries and ports with limited infrastructure.
up to 38,000 dwt, which carry exclusively minor bulk cargoes.
Historically, the Handysize drybulk carrier sector was seen
as the most versatile. Increasingly, however, this has become
more of a regional trading, niche sector. The vessels are well
suited for small ports with length and draft restrictions and
also lacking infrastructure.
elements influencing the supply of drybulk carriers are vessel
deliveries and the loss of existing vessels through scrapping
or other circumstances requiring removal. The number of ships
removed from the fleet in any period is dependent upon prevailing
market conditions, scrap prices in relation to current and prospective
charter market conditions as well as the age profile of the
existing fleet. Generally, as a vessel increases in age its
operational efficiency declines due to rising maintenance requirements,
to the point where it becomes unprofitable to keep the ship
in operation. The supply of drybulk carriers is not only a result
of the number of ships in service, but also the operating efficiency
of the worldwide fleet. For example, port congestion can absorb
additional tonnage and therefore tightened the underlying supply/demand
international drybulk shipping industry is highly fragmented
and is divided among state controlled and independent drybulk
vessel owners. As a general principle, the smaller the cargo-carrying
capacity of a drybulk vessel, the more fragmented is its market,
both with regard to charterers and vessel owners/operators.
There remains significant potential for industry consolidation
within each vessel type, especially in the Handysize, Handymax
and Panamax sectors in which we currently operate.
Drybulk carriers are employed in the market via a number of
different chartering options. The general terms typically found
in these types of contracts are described below.
"bareboat charter" involves the use of a vessel usually
over longer periods of time ranging over several years. In this
case all voyage related costs, including vessel fuel and port
dues as well as all vessel-operating expenses such as day-to-day
operations, maintenance, crewing and insurance, transfer to
the charterer's account. The owner of the vessel receives monthly
charter hire payments on a per-day basis and is responsible
only for the payment of capital costs related to the vessel.
"time charter" involves the use of the vessel, either
for a number of months or years or for a trip between specific
delivery and redelivery positions, known as a trip charter.
The charterer pays all voyage-related costs. The owner of the
vessel receives semi-monthly charter hire payments on a per-day
basis and is responsible for the payment of all vessel operating
expenses and capital costs of the vessel.
"voyage charter" or "spot charter" involves
the carriage of a specific amount and type of cargo on a load-port
to discharge-port basis, subject to various cargo handling terms.
Most of these charters are of a single voyage nature, as trading
patterns do not encourage round voyage trading. The owner of
the vessel receives one payment derived by multiplying the tons
of cargo loaded on board times the agreed upon freight rate
expressed on a per-ton basis. The owner is responsible for the
payment of all expenses including voyage, operating and capital
costs of the vessel. Chartering on a single voyage or a trip
charter basis may be referred to as spot chartering activity.
"contract of affreightment" relates to the carriage
of multiple cargoes over the same route and enables the COA
holder to nominate different ships to perform the individual
sailings. Essentially it constitutes a number of voyage charters
to carry a specified amount of cargo during the term of the
COA, which usually spans a number of years. All of the ship's
operating, voyage and capital costs are borne by the ship owner.
The freight rate normally is agreed on a per cargo-ton basis.
Charter hire rates paid for drybulk carriers are primarily a
function of the underlying balance between vessel supply and
demand, although at times other factors may play a role. Furthermore,
the pattern seen in charter hire rates is broadly mirrored across
the different charter types and between the different drybulk
carrier categories. However, because demand for larger drybulk
vessels is affected by the volume and pattern of trade in a
relatively small number of commodities, charter hire rates (and
vessel values) of larger ships tend to be more volatile than
those for smaller vessels. Conversely, trade in minor bulks
drives demand for smaller drybulk carriers. Accordingly, charter
hire rates and vessel values for those vessels are subject to
In the time charter market, rates vary depending on the length
of the charter period and vessel specific factors such as age,
speed and fuel consumption. Short-term time charter hire rates
are generally higher than long-term charter hire rates. The
market benchmark tends to be a 12-month time charter hire rate,
based on a vessel of five to ten years age.
the voyage charter market, rates are influenced by cargo size,
commodity, port dues and canal transit fees, as well as delivery
and redelivery regions. In general, a larger cargo size is quoted
at a lower rate per ton than a smaller cargo size. Routes with
costly ports or canals generally command higher rates than routes
with low port dues and no canals to transit. Voyages with a
load port within a region that includes ports where vessels
usually discharge cargo or a discharge port within a region
with ports where vessels load cargo also are generally quoted
at lower rates, because such voyages generally increase vessel
utilization by reducing the unloaded portion (or ballast leg)
that is included in the calculation of the return charter to
a loading area.
the drybulk shipping industry, the charter hire rate references
most likely to be monitored are the freight rate indices issued
by the Baltic Exchange. These references are based on actual
charter hire rates under charters entered into by market participants
as well as daily assessments provided to the Baltic Exchange
by a panel of major shipbrokers.