Falling growth takes a break
For the week ending May 3rd, dry bulk ship capacity grew 7.03% year-over-year to 595.98 million dwt. The higher increase, compared to last week’s record low of 6.95%, was driven by a larger amount of new deliveries. The dry bulk industry has shown substantial progress since the beginning of 2011 when capacity growth was running above 16%, primarily driven by over purchases of new ship builds as managers became too optimistic with future trade growth before the financial crisis.
Trade growth has weakened since China’s golden age of investment driven economy came to pass and a weaker global economy took pace. Growth in China’s iron ore imports, which makes up more than ~20% of global dry bulk trade, fell from 17.8% to 5.7% per year.
Outlook for 2013
In 2013, Jefferies estimates signal expected dry bulk trade growth of at least 6%. As dry bulk capacity was growing at a rate of 9.46% year-over-year at the beginning of the year, and given the low orderbook level, the probability that demand growth will outpace supply growth later this year looks increasingly more promising.
While dry bulk firms, such as DRYS, DSX, NMM and SB, will continue to face headwinds in the short to medium-term since China’s recent economic data points to a weak global manufacturing activity and capacity growth remains elevated, policymakers will likely support demand over the medium to long-term. For investors looking to diversify investments across several companies, they can look towards the Guggenheim Shipping ETF (SEA), which invests in the largest shipping companies world-wide.