Too many ships and not enough cargo has softened freight rates over the course of late summer.
According to shipping analyst firm Banchero Costa, approximately 76 million deadweight tons (dwt) have been delivered to the market during the first seven months of the year, with dry bulk ships alone accounting for 50 million dwt. Of that, Handymax ships have made up the lion's share, with a new unit hitting the water almost every day. Capesize ships come in second, accounting for 20 million dwt in newbuild capacity. As for new orders, there is still an imbalance of commissioned vessels and older vessels that could be scrapped, which will only worsen the overcapacity situation in the years to come.
Unfortunately, international trade-especially the dry bulk market-has not improved enough recently to support the flood of new capacity. Even China, the emerging economy that soldiered through the global economic crisis better than most and carries much of the overall import and export activity on its shoulders, has seen monthly dips and bumps iron ore and coal imports, as well as finished steel product exports, not following any clear trend. In July, China's iron ore imports increased by 6.8 percent (to 54.55 million mt) after a 4 percent decline in June, which was attributed to the monsoon season in India, the third-largest supplier of iron ore to China behind Australia and Brazil. However, reports indicated that the July gains were a peak, as Chinese steel mills are apparently trying to keep their inventories low. As for coal, China imported 17.5 million mt in July, a sharp 29 percent increase from June-a new high after a negligible 0.5 percent increase from May. The results for steel products were much of the same-a sharp increase after months of declines, with not much indication of a strengthening trend; China's finished steel exports in July totaled 4.4 million mt, a 3.5 percent gain from June following a 9.9 percent drop from May.
Aside from the dry bulk market, container traffic followed a mild increase in activity in June and July, but overcapacity has plagued it as well, leading to incredibly soft freight rates-not even a short-lived spike in bunker (fuel) rates was able to keep freight quotes at higher levels (although Capesize rates saw a short-lived jump near the end of August). While this is an ideal situation for steel traders and their clients (buyers and sellers), it has been worrying for ship owners and brokers who are already under pressure from low demand levels.
While Capesize and Handymax rates still lag, parcel shipment rates have not changed much after dropping dramatically a few months ago. Current Handymax rates to the US for large tonnage of steel (i.e. at least 15K tons of HRC or wire rod) are now as follows:
Baltic Sea to US East Coast: $60-$65/mt
Baltic Sea to US Gulf Coast: $60-$65/mt
Black Sea and Mediterranean Sea to US East Coast: $50-$55/mt
Black Sea and Mediterranean Sea to US Gulf Coast: $50-$55/mt
East Asia to US Gulf Coast: $62-$65/mt
East Asia to US West Coast: $58-$63/mt