Before we begin, let’s clarify the term super-cycle. It can mean many things, but here we are using this to refer to medium to long-term expectations of acute market tightening resulting in abnormally high spot and TCE rates.
Many might recall the last dry bulk super cycle in the early 2000s which was brought about through the combination of a thin orderbook and a pronounced Chinese infrastructure development.
The low orderbook and heightened spending were the obvious headlines for this cycle, but a key attribute to the longer-term nature of this story was how the orderbook, which rapidly started climbing in 2003, was unable to catch up to demand side growth. Meaning the market had swung well past the equilibrium point into the tightening phase before deliveries could begin to act as a balancing mechanism. Tightening phases, once strong enough, are typically accompanied by their own sort of reinforcing feedback loop effects. Kind of like what we are currently seeing in containers, though that would be an extreme example of feedback loop effects.
So, while rates started climbing in 2002, and newbuild orders followed in 2003, resulting in the years between 2004-2008 having what would have been considered a very high number of deliveries, the game of catch up coupled with ongoing demand growth proved too difficult to overcome. This was simply due to the lagging nature of vessel construction. Capesize rates finally peaked in May of 2008, succumbing not to a vessel supply glut, but rather the consequences of The Great Recession.
Prior to that 2000 super-cycle the dry bulk orderbook briefly dipped into the single digit range for a few months, to a low of 7.22%, with well over a trillion in dry bulk intensive State directed spending set to take place.
Turing to 2021, the dry bulk orderbook has been below the double-digit percentage range for over 18 months, now standing at a paltry 6.14%. This comes as trillions of dollars in global State directed spending is set to take place.
Already, market fundamentals are showing, and rates are confirming, that we are now entering that lead-time phase which would be a major contributing factor to not only the strength of this market move but also the duration.
This lead time phase is being complimented by this ongoing aversion to newbuild orders which will factor into the market in 2023 and beyond. This two years of lead time is substantial and given the scope of spending should prove difficult to reconcile in a short period of time.
Therefore, given the positive abrupt demand side shift compliments of global governments, the low orderbook, a sustained lack of newbuild orders, and the notion of possibly two-years of lead-time (which will likely witness significantly increasing demand) to properly set the market into a sustained tightening phase, I now see a probability that the foundation for a super-cycle is currently being established.
Since this is the just beginning, the magnitude and duration of this cycle is yet indeterminable. Right now, spending looks diverse and secure since it is taking place by Governments all over the world which bodes well for the demand side over the next 5-7 years. Therefore, all eyes will be squarely on newbuilds to see how long owners can go before they overorder.