Owners of dry bulk carriers should be thrilled with the returns of the current freight market. In its latest weekly report, shipbroker Allied Shipbroking said that “having already reached the peak of the summer period, most in the dry bulk sector should not be no less than thrilled in terms of how long strong earnings have been sustained. Notwithstanding this, with the currently fast-growing new cases of COVID19 worldwide (especially from the Delta variant), we have had a stark reminder that the ongoing “post-pandemic” period is still very fragile, and things can easily be shifted off course.
Source: Allied Shipbroking
According to Mr. Thomas Chasapis Research Analyst with Allied, “as of late, the market seems to have become perfectly attuned temporarily (in absolute figures) in the spot market, with TCA figures for all size segments being relatively close to the US$ 30,000/day mark. A similar trend is due in the year-to-date average figures, where they have stabilized within a tight range of US$ 21,000 – 25,000/day. Are these numbers a brief ceiling in overall freight returns in the market? In previous years, we have become accustomed to an upward rally during the last part of the summer period and closing of Q3 of the year, especially in the Capesize market. It is time to see whether that hefty jump in the bigger size segment is set to take place this time around and help calm the recent debates that this sub-market has been slightly lagging behind the overall dry bulk sector”.
“However, taking this seasonality patterns for granted may well prove only speculative, given that this trend took place during market conditions in a recovery mood. In a “healthy” market, with bullish sentiment and robust fundamentals, what type of Q3 and Q4 can we really expect? So, what sort of risks does the dry bulk sector currently face in this market regime and can they derail the market’s stability in the long run? As of late, we have seen a small slowdown in SnP activity levels. It is very early to point any shift in direction, given that this temporary trend can be explained by other factors like the typical holiday disruptions or the asymmetrical distribution in transaction flows amidst a fastchanging market”, Chasapis said.
Source: Allied Shipbroking
Allied’s analyst added that “activity though still remains at comparatively good levels, but the pressure for more volume has been smoothed slightly out. Don’t however mistake this as a step back in buying appetite. There is a strong belief that the price ideas gap between buyers and sellers has widened further as of late. It seems fair, given that as mentioned several times of late, there is room for further gains to be made in asset prices. Yet a big spread can result in many outlier figures taking place that can derail the SnP market’s balance. In such a case, it would not be a surprise to see an “overinvestment” taking place in the secondhand market, a state that can result in a pressure factor in terms of performance levels, when there is a large pool of high-priced units in the market.
Source: Allied Shipbroking
All-in-all, given the current fleet development and newbuilding activity, the dry bulk sector can still expect to reach new highs and hold overall better forward returns, given the current robust commodity trends. However, “over-investment” is a perilous path, when it is ambiguous as to where one is in the economic cycle. “Expensive” assets can result in poor asset risk-adjusted returns. Excessive newbuilding activity can trigger a new imbalance in the demand/supply dynamic. Strong investments for future production levels in raw commodities can add pressure to price levels, if global macroeconomic indicators move in a different direction and demand for commodities underperforms. In the short run, it seems “safe” to follow momentum. At the same time though, wouldn’t it be prudent to be “long” on volatility?”, Chasapis concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide