Overcapacity and other fears.... Alarms, Bells and the clock is ticking

During July 2010, we saw the heavy fall of the Baltic Dry Indices. During the 25 year track record of the Baltic Dry Index, we had only encountered another 3 times such a great prolonged period of consecutive falling days. Previous consecutive declines of the Baltic Dry index recorded showed in 1995 48 daily sessions that cased a ‐27.5%) decline, in 2001 when the index dropped for 36 daily sessions and decline ‐30.9% and finally in 2005 when the BDI dropped for 29 daily sessions and lost ‐37.6%). This time the drop lasted for 35 daily sessions and index declined by ‐60%!!!! The question is have we reached the bottom of our downslide? Can we safely say that “things can only get better” from tomorrow? 

Well we could easily say yes at first.


The problem is that the still ticking time‐bomb, which is the potential overcapacity from all pending newbuildings that the dry bulk market still has to deal with, is rather serious, and is not aided at all by the addditional reported newbuilding contracts that are constantly added to the already heavy order book. It is evident according to the adjusted fleet data that NCSC analyzes each month the capes fleet will be increased by 96 million tones if all 470 NB capes are to be constructed, and this extra tonnage is approximately amounting to 58% of the existing deadweight capacity. In the Panamax sector there are 52mil tonnes of extra capacity on order of approximately 661 vessels still to be constructed and this carrying capacity in dwt is 43% of the current active fleet of Panamaxes. To top this we see 1 Cape delivered every one day in July and 1 Panamax every 1 1/2 days, while the new orders placed only this month alone amount to 23 Panamax units and 10 Cape NB ships.

We are not against any shipowner or investor's decision to book a newbuilding vessel, but frankly speaking there is no logic at this present time and under the prevailing market conditions to put logic behind this move… Simply speaking with just so many pending orders that are simply waiting to be renegotiated and possibly sold at discount prices, we find it very hard to understand and give the thumbs‐up to all this frenzy of neworder inking. It is partly the "lemmings‐effect" and partly the fashion of follow the leader... because "he knows better"...!!! In any case 388 bulker units ordered in 2010 alone, is a large number and adding to this the 178 tanker units ordered make an alarming new number in the equation that we have to provide a solution for our industry. Let's not forget the 5115 bulker and tanker vessels still on order, that are scheduled to be delivered in the period 2010 ‐ 2015 (3764 bulkers & 1351 Tankers on order).