Following limited contracting in the bulkcarrier sector in the last three years, the bulkcarrier orderbook has declined significantly. By the start of October 2017, the orderbook totalled 623 vessels of 64m dwt, equivalent to 7.9% of fleet capacity, close to the lowest ratio on record. With newbuilding interest starting to pick up, could the bulker orderbook now have bottomed out?
Three years ago, the bulker orderbook totalled 2,208 ships of 182m dwt, equivalent to 24% of fleet capacity. While this was 45% lower than the peak orderbook of 332m dwt in late 2008, it nevertheless was sufficient to drive continued firm deliveries in 2015-16. Amidst difficult market conditions (with weighted average bulker earnings falling below $4,000/day in early 2016), and limited access to finance for many owners, contracting in recent years has been very subdued. Bulkcarrier ordering fell from 64m dwt in 2014, to 24m dwt in 2015, and just 14m dwt (across 55 ships, including 30 Valemaxes) in 2016. As a result of the historically low levels of contracting, the orderbook shrank by 51% between end 2014 and end 2016 in dwt terms, to total 941 vessels of 85m dwt. This equated to 11% of fleet capacity, the lowest level in almost 15 years.
Change Of Terrain
However, in 2017 so far, ordering has started to pick up, with 17.1m dwt contracted. This volume is already 22% higher than the full year 2016 level, largely reflecting increased Kamsarmax ordering, even if overall newbuilding interest has remained at subdued levels. Nevertheless, the continued firm pace of deliveries (with bulkcarrier deliveries projected to remain over 40m dwt in full year 2017) has meant that the orderbook has shrunk by a further 25% in the year to date. By the end of September, the orderbook totalled 64m dwt, equivalent to 7.9% of fleet capacity, close to the historical low of 7.2% recorded in April 2002 (although the volume of capacity currently on order is around three times larger).
The Path Ahead?
Looking ahead, is there scope for the orderbook as a percentage of the fleet to decline further? Assuming that deliveries and recycling reach current projections of 43m dwt and 15m dwt respectively in full year 2017, continued ordering in Q4 2017 at the run-rate seen in the last six months would lead to the orderbook to fleet ratio declining marginally to 7.7% by the end of 2017. However, based on current delivery and demolition projections, ordering in Q4 2017 and full year 2018 at the run-rate seen in the last six months could see the orderbook to fleet ratio increase to 9.5% by the end of 2018 (or 12.8% if ordering continued at the pace seen in September). Indeed, ordering would have to slow to below the year to date run-rate to prevent an increase in the orderbook to fleet ratio by the end of 2018.
So, despite increased ordering so far in 2017, the bulkcarrier orderbook has continued to shrink. While a further decline in the orderbook to fleet ratio is possible in the rest of 2017, there is clear potential for the higher contracting levels seen recently to lead to an increase in the ratio next year for the first time since 2013, suggesting that the most likely scenario is that the current orderbook cycle is now in the process of bottoming out.
Source: Hellenic Shipping News.