World Grain - July 2014 - 38

FEATURE: SEEKING BALANCE

Baltic Supramax Index
1,600
1,400
1,200
1,000

May-2014

Mar-2014

Feb-2014

Jan-2014

Nov-2013

Oct-2013

Sep-2013

Aug-2013

Jul-2013

May-2013

800

Source: Baltic Exchange Information Services Ltd.

a nudge up to the freight rates is a sign that oversupply is
bearing down on the sector again. In our view, the increase in
freight rates in 2014-15 will be limited."
DIVERGENCE OF THOUGHT
Unlike many of his peers, George Economou, one of the
stalwarts of the sector and Chairman and Chief Executive
Officer of Dry Ships, is defiantly bullish in his forward outlook. He believes that charter rates for larger dry bulk carriers
under-performed during the first quarter of 2014, and "forward charter rates and asset prices are holding up resiliently,
underscoring the bullish market sentiment."
He predicts "a sustainable recovery in charter rates during
the second half of 2014 and beyond."
According to Batra, there was a rush of new orders in 2013

based upon low prices, early deliveries, "eco ships" and a flood
of private equity into shipping. But newbuilding prices are now
rising and are not supported by current freight rates, a dynamic he
believes will dampen speculative orders. A significant number of
vessels are still on the order book and due to be delivered through
2016, but Batra expects order levels to be "moderate" unless
there is a sustained freight rate recovery and this will see fleet
growth gradually return to more normal levels over 2014-19.
Over the next few years he expects demand to grow marginally faster than supply.
"We, therefore, expect that freight markets will gradually improve over the next few years," he said.
However, Batra raises an additional point about vessel
speeds. Drewry says the average speed of the dry bulk fleet has
fallen from about 14 knots to about 11 knots as freight markets
have declined in recent years, a strategic change which has absorbed about 15% of capacity.
"Speed acts as a bellows which absorbs/releases supply into
the market as freight levels increase/decrease," said Batra.
"This latent capacity will act as a 'cap' to how high freight
markets can rise.
"We do not expect sustained large increases in freight rates
as this would bring in additional supply in the form of ships
increasing speed. We expect volatility to continue or increase
as we get closer to equilibrium. The volatility will be amplified by seasonality, weather and external events."
Michael King, a freelance journalist and editor, has been writing about
shipping, transport and commodities for more than a decade. Currently
based in Indonesia, he can be reached at: Michael@borderline.eu.com.
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World Grain - July 2014

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