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Dry bulk market – short sea

Dry Bulk Market: Shall we trade Short Sea or Deep Sea?

The Dry bulk shipping market is the primary provider of global transportation services for commodities, since dry bulk cargoes constitute the biggest part of the seaborne trade. Dry bulk cargoes are divided into two principal categories: major bulk cargoes and minor bulk cargoes. Major bulk cargoes consist mainly of iron ore, coal and grains, while minor bulk cargoes include bauxite/alumina, fertilizers, steel products, forest products and cement. On the other hand, dry bulk vessels are categorized basis their carrying capacity, with the basic categories being the following:

  • — Mini bulkers & Coasters, with deadweight up to 20,000 MT
  • — Handysize bulkers, with deadweight up to 40,000 MT
  • — Supramax/ Ultramax bulkers, with deadweight up to 65,000 MT
  • — Panamax/Kamsarmax bulkers, with deadweight up to 85,000 MT
  • — Postpanamax bulkers, with deadweight up to 110,000 MT
  • — Capesize bulkers, with deadweight up to 200,000 MT

There are many dry bulk trades, of which some of them are local or “short sea” (e.g. grain trade from Black Sea to East Mediterranean) while others are International trades or “deep sea” (e.g. iron ore from Brazil to China).

Short Sea vs. Deep Sea Shipping: An Overview

Short Sea, or Coastal Shipping as it is also called, is the transportation of commodities in short distances, along a coast, without crossing an ocean and it is usually serviced by small vessels (i.e. mini bulkers or tramp ships). Those short sea vessels are not just smaller bulk carriers but they also have specific modifications peculiar to their special trades in order to maximize their flexibility of cargo intakes. On the other hand, Deep Sea Shipping is the transportation of commodities in longer distances mainly crossing an ocean and it is usually utilized by bigger vessels (i.e. supramax, panamax, postpanamax, capesizes) in order to achieve economies of scale. Handysize bulkers are very flexible vessels which can serve both sectors; they can either work on coastal trades or get utilized in longer routes in order to transport small commodity parcels. Short Sea and Deep Sea Dry Bulk Shipping have similarities and differences between each other.

Short Sea Dry Bulk Shipping: Its Main Characteristics

Due to its high geographical segmentation, Short Sea Shipping is highly specialized and depended on the long term relationships between the parties, thus the entry barriers for new players are high. While Short Sea Shipping is sometimes quite sensitive in the seasonal effects of the local trade (e.g. grain season), the high flexibility of the small vessels which can carry almost all types of dry bulk cargoes, provides some relief to the shipowner and gives the option to carry alternative cargoes or even work with parceling (i.e. loading more than one cargoes in order to maximize the revenues of the voyage). Furthermore, while Short Sea Shipping follows the market dynamics of deep sea shipping, it generally remains unaffected by the volatility of international shipping which results from the imbalances between world supply and demand. Though, since these vessels are not able to be repositioned easily, their performance is highly linked with the economic situation and geopolitic conditions in the area of vessel’s trading.

Deep Sea Dry Bulk Shipping: Its main Characteristics

On the other hand, Deep Sea Shipping is fully competitive and without entry barriers. In this case, the market is directly related with the movements of the world supply and demand, the imbalances of which create high volatility especially for the bigger vessels, which are less flexible in terms of cargo intakes than the smaller ones. Factors like the newbuilding vessels which are delivered each year and the vessels sold for scrapping or the economic growth of major countries like China, India and USA and their demand for shipping services may drastically change the balance between supply and demand and affect the freight rates. Despite the fact that also in this case there is some geographical segmentation (e.g. Pacific vs Atlantic market) and some seasonality (e.g. grain products from East Coast South America to China), their effects on deep sea shipping are less important than in case of Short Sea Shipping.

Commodity Prices: Do they affect the shipping markets?

Either the vessels are trading in the short sea or deep sea market, freight price is an important part of the final commodity price which means that there is high correlation between the two. During periods of low demand/low prices, both the Seller and the Buyer push down the freight cost in order for the sale transaction to be viable. Also in order to minimize the transportation cost, the Buyers may look for alternative sources closer to the delivery port (e.g. a Chinese Iron Ore Buyer may look for Iron Ore from Indonesia instead of iron ore from Brazil). Such decision may have various effects on the dry bulk market. First of all, in this case there is increasing activity for short sea shipping and decreasing activity for deep sea shipping. Secondly, the decrease of the distances between the loading and the discharge port decreases the ton-miles, which subsequently decreases the demand and affects (mainly) the deep sea shipping market negatively. During the last two years, the price for iron ore and coal, which are the two main dry bulk commodities are historically low and similar is the condition in the shipping market as well. Iron ore price with delivery CIF China are negotiated during 2016 between usd 40 per MT and usd 55 per MT while two years ago those prices were higher than usd 100 per MT. Since there is not any expectation for a high improvement, shipping expectations remain bearish in the short term.

Recent Market Developments – Future Expectations

The increased supply due to the new vessels’ deliveries along with the poor economic indicators & low demand has pushed the dry bulk market at very low levels recently. The relevant imbalance is apparent by seeing the growth of fleet and the growth of seaborne trade for 2015. Growth of fleet capacity was estimated at about 3.2% while the growth of seaborne trade was estimated at about 1.9%. What even worth, is that the oversupply grew in 2015, and at a faster pace than previously. By year-end 2015, supply was 32% greater than demand. This imbalance resulted at the collapse of the freight market during the H1 of 2016 which reached historical low levels. Despite the fact that the growth of new deliveries is decreasing and the ship demolitions are also at historical high levels, there are still a lot of vessels to exit the market until some equilibrium occurs and the market returns at healthy levels.

Short Sea Shipping is mainly facing the high uncertainty of the economic growth that a lot of countries encounter. On the other hand, deep sea shipping is mainly facing an overall depressed market due to the heavy oversupply as well as a high volatility which occurs due to the high fluctuation of economic growth and demand for new cargoes around the world.

Despite the fact that most of the Shipowners, Charterers and Shipbrokers prefer to specialize in one of the Short Sea or Deep Sea dry bulk markets, OpenSea is offering their services in both sectors. OpenSea eliminates the entry barriers of the short sea shipping by bringing into contact the parties, provides insights in the current condition (supply/demand) of a specific geographic area or the globe and offers its clients market information which is necessary to evaluate the freight market and commodity market conditions and take the appropriate decisions.

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