Dry Bulk Markets: It’s Not Always About Demand


Typically, supply side cycles set the tone for the medium to longer term market, with rare exceptions. However, as China expanded in the early 2000’s, this shipping segment became dominated by demand side trends. The potency of that demand side strength has yet to be forgotten by dry bulk bulls. Many continue to look to demand side stimuli for exceptional long term moves.

There could be some merit to that as the USA is rumored to be working out a trillion-dollar infrastructure plan and China has announced its own spending. So, while the potential for an improvement in dry bulk demand lingers on the horizon, its also important to examine the other part of the equation which is also looking increasingly promising, the supply side. Here we’ll take a look specifically at the capesize class.


A combination of high deliveries and zero orders led to the capesize orderbook briefly entering the 5% level at the start of Q4 in 2020, an unthinkable achievement just a decade ago.

Now we find ourselves back at the 7% level in terms of both vessel numbers and dwt, which is still well below what would be needed for replacement tonnage and to satisfy long term average growth rates.

Source: Data Courtesy VesselsValue – Chart by Value Investor’s Edge

Some newbuild orders have made headlines lately, mostly because they present a departure from recent trends, but they represent a very minor number when viewed with historical context.

Source: Clarksons – Capesize Newbuild Orders by Month

In fact, if we look at it from an even longer perspective the low ordering as of late is matched only with the historic bear market of 2016, which witnessed the Baltic Dry Index set record lows.  However, as many know, rates are far from those 2016 levels. 

Source: stockcharts.com

Even with the inclusion of these latest newbuild orders we are still near multi-decade lows in the capesize orderbook.

Source: Clarksons SIN

Key Takeaway: As stated earlier, this latest downturn revealed that market base fundamentals were respectable, referring to the supply/demand balance. This is important since up to 2020 we had to consider excess vessel supply already on the water (the result of overdelivering for a decade) combined with orders to be delivered.

The point here is that as that on the water vessel glut is absorbed, and the market nears equilibrium, the orderbook becomes the real focal point of new supply availability. Therefore, it is expected that this thin orderbook will have an increasingly positive impact on the overall market moving forward, as we move further away from that supply glut absorption phase.

Aside from spot and charter rates, asset prices will also experience the benefits of a tightening market since vessel prices (beyond demo value) are directly correlated to their current and future earnings expectations.

A market shift impacts older vessels the most as their few remaining working years are closely aligned with the current market cycle, while younger vessels likely have several market cycles on their horizon. Right now, we are seeing asset prices nearing the lows experienced during the historic 2016 bear market.

Source: Clarksons SIN

It’s exceedingly difficult to imagine a non-Black Swan event that could result in significantly lower asset prices. However, it’s easy to see how asset prices would respond to an improving market as we saw in 2014, when these vessels were roughly double the price they are right now.

This is one reason why I believe owners will place an emphasis on secondhand tonnage at the early onset of an improving market.

Another reason would be the difference in price between secondhand tonnage and newbuilds, which remains at one of the greatest disparities this century.

Source: Clarksons SIN

Ideally, these prices will inspire owners to turn to the secondhand markets even with the relatively higher operating cost of an older vessel.

Finally, one last reason comes from the widely available tonnage around the 10-year mark which is pictured below. Taken together this should induce a fair degree of secondhand activity as the market improves which would ideally keep newbuild orders reasonable for a time being.

Source: Data Courtesy VesselsValue – Chart by Value Investor’s Edge

Since we have this chart conveniently above us let’s talk a bit about demolition potential, which is sorely lacking in the capesize class.

There are a total of just 16 vessels that are 25 years or older in the capesize fleet. The average age of a capesize vessel being sent to the beaches in 2020 was 24.02 years and because this year is expected to see improvement over last, we can expect a lower number of demos coupled with a higher average retirement age, hence my focus on 25 years.

As we can see below, when bear markets cleared out older tonnage it is typically followed up by calmer periods.

Source: Clarksons SIN

2020 is expected to represent that short-term peak clearing year whereas 2021 will likely bring a sort of market reconciliation, with demo numbers dipping.


2020 will represent the peak for deliveries in this short-term supply-side cycle, which came during what will likely be the peak for demand destruction related to the pandemic.

This unfortunate timing of these circumstances provided more than enough reason for the dry bulk market to capitulate. Instead, it weathered the storm in a most admirable fashion, indicating that base market fundamentals were respectable.

As we moved through 2020, supply side reactionary shifts began to take place which were not only aiding the near-term market (increased demolitions) but further out as well (newbuilding investment).

These factors contributed to a much earlier projected market rebalancing as well as an increasing propensity for a stronger supply side aided bull cycle in 2021 and beyond. Much of that appears to have played out as expected and we are currently looking at a very promising supply side which should ideally compliment an improving demand side.