Dry Bulk Market

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Dry Bulk Market
A bulk carrier is a merchant ship designed to transport unpackaged bulk cargo such as grains, ore, coal and cement in cargo holds. The first bulk carrier was built in 1852 and since then, there have been great innovations both size and sophistication. Many bulkers found today maximise on capacity, safety and efficiency, and make up a quarter of the world’s merchant fleets. They range in size from single-hold- mini-bulkers to mammoth ore ships. Korea is the largest single builder of bulkers and most of it ships were built in Asia.
Bulk carriers participate in loading and unloading of cargo and keeping its machinery properly maintained. The transport industry faced its sharpest correction in economic structure in the year 2008, since the seventies. The core activities in the sector are demand for transportation services and the money supply to finance the capital costs of the ships and operating expenses. These are not however linked as the demand depends so much on the economic strength of developed countries and money comes from the banking and investment industry. The ships are the capital assets in the business, thus offering a very liquid market in the capital assets (Habron, 2002, p.12). This translates to a very volatile market both in income streams and the cost of value assets which has increased with the years and is made worse by the increasing supply of shipyard in Asia. Prices of all new ships inflated from time to time as shipyards responded to demand which is not concurrent with fright charges.
The year 2008 was also faced with an enormous inflation of freight charges in the energy and raw materials sector, consequently affecting the manufacturing costs in China. This was around the same time that the economies of USA and “old Europe” sank into recession and the world capital markets had the worst disruption in what came to be known as The Great Depression (Burwash, 2000, p.31). The year 2008 dry bulk collapse however, was very different from the other previous market downturns in number of ways; to begin with, China’s economic growth has always been driven by great outsourcing of all types of consumer goods especially from USA and Europe. This is linked to the demand of Chinese manufactured goods in both USA and Europe. If the demand gets low, China’s demand for shipping will also get low. Secondly, capital supply forms the major drive in the shipping industry. Annual expenditures add up to $100bn on new ships alone and $30bn in second hand shipping, no doubt this is a very huge capital consumer (Zeis, 1999, p.23). These funds have been provided as debt to China from commercial banks in USA and Europe, Banks had increased their lending capacities and new forms of loan syndication had emerged. These forms were known as the Securitised Debt Instruments. They were meant to be sold to investors, hedge funds and mutual funds that operate outside the banking regulatory mechanism. The securities were traded like bonds in unregulated markets through periodic auctions set by the banks; this later translated to a huge supply of cheap money against a new demand for shipping services. The abundant supply of cheap labour went on throughout the whole period as many commercial banks got very creative and the United States Federal reserve did not regulate the new forms (Fisher, 1999, p.73). Despite the huge investments, the late 2008 was met with huge debt markets and billions of money had been placed in unregulated debt markets with little regard for credit worthiness. Mortgages were used as securities and these were sold to insurance firms and financial institutions all over the world. Debt auction markets later collapsed and holders of the securities cannot sell them neither can they establish their value. The markets were not only unregulated but also unreported. The high cost of seaborne transportation is the sole primary source of the economic problems faced in the shipping industry however, china is dealing with this by expanding its flight just like Japan did in the 1980’s and the and the early 70’s (Cornell, Glover, 1998, p.11). Apart from the rising inflation experienced in The United States and the major European countries, economic growth also stagnated and declined in most of the countries. China lost a lot of money in steel mills leading to increased costs of imported iron ore, despite the government’s subsidization in these costs china’s steel production will focus on domestic demand other than export markets. These has however been picking up significantly since the late 2008 due to cancellation and delays of expected new build deliveries, increased port congestions witnessed mainly in Australia and China and China’s increasing demand for iron ore, and China and India’s increasing demand for coal.
Many governments in the world have put in place policies meant to increase loads carried by freight charges. These include Metropolitan areas for instance Copenhagen where vehicles need to observe specified load factor requirements. Additionally, freight centres have facilitated cargo transfer (Padraja, 1996, p.16). Maximum vehicle weights have always been the attention of many governments and a considerable increase has been noted. In the year 2008, in China, a total of 112 capsize vessels were delivered. In 2001, a total of 115 had been delivered with another 101 waiting to get under the keel. Active fleet has thus grown by almost 8.2% and almost 2 million DWT being demolished. Demolition of freights of dry bulk vessels has increased annually with the large vessels facing a major threat. Despite the various renewals by many owners, there is likely to be an oversupply of tonnage in the industry (Habron, 2002, p.34).
The ship demolition market is determined by a number by trends affecting several factors t...