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Shipping slump over

The worst-ever slump in rates to ship iron ore, coal and other dry-bulk commodities is over as the industry’s largest glut in decades diminishes, according to Morgan Stanley.

Vessel earnings that were below costs including crew and repairs as recently as June won’t return to those levels for the next several years, Fotis Giannakoulis, a New York-based analyst at the bank, said by phone on Saturday. Rates should be profitable again next year, meaning they’ll exceed operating expenses and interest repayments for ships with standard financing, he said.

The fleet will grow at the slowest pace since 2003 this year after expanding 80 per cent since 2008 during the industry’s biggest-ever shipbuilding programme, according to Clarkson Plc, the largest shipbroker. While rates to haul iron ore surged sixfold since June, such rallies will only be sustained next year because there are still too many vessels seeking charters, Giannakoulis said.

“The worst is over,” he said. “But I think we need to go through many more months of oversupply. For a meaningful recovery, we need to wait for another year.”

Capesize rates more than doubled to $35,428 a day this month, the highest since November 2010, according to the Baltic Exchange, the London-based publisher of shipping costs.

Earnings averaged $6,136 a day in the first half of the year, less than the $7,758 they need to cover running costs such as crew and maintenance, according to data from Moore Stephens LLP, a London-based industry consultant. The rally was because Chinese iron ore buyers were replenishing inventories, Giannakoulis said. Stockpiles at the nation’s ports fell 25 per cent to 70.4 million metric tons in the past year, according to data from Beijing Antaike Information Development Co.

Unlike previous rallies around this time of year, rates won’t recede as low as they were, Giannakoulis said. The capacity of the global fleet of Capesizes, which each carry about 160,000 tons of raw materials, expanded 5.5 per cent in the past year, compared with 18 per cent in the prior 12 months, he estimates.

Rates for the vessels will average $9,500 this year, rising to $16,500 in 2014, the highest since 2010, Morgan Stanley estimates.

The total dry-bulk fleet will expand 7.8 per cent this year and 4.9 per cent in 2014, down from 10 per cent last year, Giannakoulis predicts.

Demand will advance 5.7 per cent this year, led by an 11 per cent gain in iron ore, figures from the bank show. Capacity across the dry-bulk fleet is about 30 per cent bigger than demand, the largest excess since at least 1986, Clarkson said in a report last month.