SteelOrbis talked to Enrico Paglia, research manager of banchero costa about the current conditions in the freight market and the expectations for the coming period.
Can you inform our readers about banchero costa?
Banchero costa is a network active in the maritime sector but also in the insurance and advisory industries. Established in 1968 as a shipbroking house in Genoa, Italy, banchero costa has grown throughout its history to become the international network it is today, with offices in nine countries across Europe, the Middle East and the Far East. The range of expertise has increased as well as the geographical presence: to the ship brokerage, further services were added to face the challenge of the more and more demanding and complex shipping world. Services now span from chartering to sale and purchase, through insurance, risk management, advisory, trading, ship finance, ship repairs, towage and salvage, research and analysis, where I belong, to name a few.
What can you say about the increases in freight rates? Do you expect the uptrend to continue?
As said during the New Horizons in Steel Markets conference, I was expecting a stronger 2021. I believe rates have increased a lot already, especially for medium and smaller units, which again was something we had been expecting. Assuming the Covid-19 pandemic will keep progressing positively, as we have been witnessing since the end of last year when people started to be vaccinated, I believe the dry bulk market will remain quite strong in the future. I do not expect anything near the super-cycle that ended with the Lehman Brothers bankruptcy, but a much healthier environment compared to the recent past. Moreover, let’s not forget that there are new and considerable costs for shipping, all related to the new environmental measures that have been entering into force.
The Baltic Dry Index, which normally follows a downtrend during January, hit 1850 this year in January and then started to decline as of the end of the month. How do you see this trend?
You are right. The BDI has recorded a peculiar trend so far this year. The decline, however, is caused exclusively by the drop of Capesize rates, whilst rates for all the other sizes have kept increasing and are currently at multi-year highs.
At the New Horizons in Steel Markets conference, you mentioned that dry bulk deliveries are expected to decrease in 2021-22. Can you elaborate on the reasons behind this expectation?
In 2020, 450 units were delivered, equal to 48 million dwt. In 2021, we expect less than 300 units for a total of around 30 million dwt, and for 2022, based on the current order book, we expect even less; these would be the slowest rates of deliveries recorded in at least 15 years.
Such a low order book is due to three main reasons. The first one is that the dry bulk sector experienced a very difficult market over the last decade, chronically affected by overcapacity. The second reason is the access to financing, which is largely restricted to major groups or is quite expensive. The third reason is that shipping as a whole is considered to be on the verge of a profound evolution dictated by the new environmental regulations and by very ambitious targets imposed by the International Maritime Organization for 2030 and 2050. Considering that ships have a life of at least 20 years and that it usually takes a couple of years between the ordering date and the delivery, the 2050 targets are just around the corner. While a number of alternative solutions are currently at different stages of development or under study, only a few owners are ordering new tonnage, because nobody knows exactly what to build.
The prospect of a much stronger market in the future can mitigate this situation and we have already witnessed some new ordering activity surfacing, but volumes overall have so far remained very limited.
What do you expect for 2021 regarding the freight market?
As said before, I believe the market will remain quite strong despite the volatile nature of shipping rates. The stimulus measures put in place by major economies to seed a rapid economic recovery are worth an estimated $15 trillion and the effectiveness shown by vaccines are pointing to a rebound of industrial activity and a pickup of consumer demand. Steel production suffered a terrible year, except in China and the Middle East region, which showed significantly more resilience than the rest of the world, but as soon as December a strong recovery seems to have started in many large producing countries, which is very positive for dry bulk. Commodity prices are already at multi-year highs. The number of ships on order, the single most important problem for shipping over the last decade, is well under control and I don’t expect the supply to be a problem in the future.