Norden CEO does not expect improved bulk market until 2021
Date: Tuesday, April 7, 2020
Source: Shipping Watch
2020 has been written off for the dry bulk market, says Norden CEO Jan Rindbo, who currently sees rates that can keep ships sailing, but not much more than that. "The question is also what kind of world we'll return to," he says.
Economic slowdown in China. Closure of mines in South Africa. Rates plunging to just above operating costs.
Sliding fuel prices that water down the benefit of having installed scrubbers. A global economy that faces a violent, sudden drop. Too many newbuilds.
And then the coronavirus itself and the consequences the pandemic has on an entire industry, shipping companies and their employees.
There are plenty of challenges facing the dry bulk sector right now.
Especially when considering the fact that everything comes in the wake of an unusually weak start to the year, an unresolved trade war between the US and China, which came after a swine flu in China, which put a damper on China's key import of soybeans last year.
This creates a picture of the black swan many talk about, and how it has enveloped the dry bulk sector.
"Right now it's very much a matter of having the fleet in the right places and to be able to quickly adapt, as no one's immune to what's happening right now," Norden CEO Jan Rindbo tells ShippingWatch.
Market sorted into two tracks
It is not because there are no bright spots, says the Norden CEO, who has sorted the market into two tracks right now.
One covers grain, soybeans and fertilizer, and these are actually running fairly normally still, due to, among other things, Brazil's harvest looking big this year. And because the world cannot go without foods.
The other track covers commodities such as iron ore, coal or bauxite, and this is another story. When production and construction in China stops, less steel is needed. And when India shuts down and introduces a curfew for 21 days, power plants need less coal.
One could go on like this. Even the European steel rolling mills have cut their production, as the car factories are shut down.
As such, 2020 has already developed into a highly unusual year for the dry bulk sector, in which a chief executive of a shipping company can observe how events that would otherwise occur within a decade or two are now taking place within a few weeks.
Expected difficult year
Right now, customers actually benefit more than the shipping companies from the rates the ships are sailing at. In the segments in which Norden operates – handymax, supramax and panamax – spot contracts currently hover around USD 5,000-6,000 per day, which is far from being good business for most shipowners.
Looking toward the third and fourth quarter, this will increase a bit in the contracts that have been signed, but the figure will not exceed USD 9,000.
In order for a major shipping company to profit, keep its entire organization running and ensure the investments that are continuously needed, the rates should be around USD 13,000-14,000 per day.
A shipping company such as Norden had already expected a difficult market and did not expect a strong 2020. The developments in recent weeks have only confirmed these projections.
The quick upturn that everyone had been hoping would emerge in the wake of the Chinese New Year never happened, and right now the recovery that normally follows a slow start to year has been postponed with a time frame that remains unknown in light of current developments.
What is happening in Brazil?
Because what is happening in Brazil, with São Paolo and its main port of Santos, where the virus is not expected to peak before June?
Here there are again two tracks, if one asks Rindbo.
One is the pessimistic view, which will hit the dry bulk sector hard, as growth in the global economy takes a big hit this year, and because restrictions and closures of companies ultimately hurt the dry bulk shipping companies.
The other track is the more positive one, wherein enough money is pumped into the national economies around the world, so that there will be a need for steel, coal or bauxite. And in which the dry bulk sector is hit less hard than other segments in shipping, for instance container or, in particular, the cruise shipping sector.
"The development in the global economy depends on when things open up again. It's very difficult to make predictions about. The question is also what kind of world we'll return to," says Rindbo.