Dry Bulk: Seasonality comes into play, as ship owners rely more on grain trades to offset losses elsewhere

In Hellenic Shipping News 15/07/2016

Dry bulk ship owners these days are looking into all potential trades which can help them cover some ground and offset some of their losses. As it turns out, with the iron ore and coal trades having heavily hampered the performance of dry bulk carriers during the course of the past couple of years, market players have increasingly turned to other trade for a source of positive market potential. In its latest weekly report, shipbroker Allied Shipbroking noted that “in this regard we have seen the grain trade play an ever more vital role in providing some form of comfort and relief in this poorly performing market. This means however that the market has become even more susceptible to the seasonal fluctuations the grain trade holds. The bumper harvests that have been noted over the past 4 years have been adding steadily to the growth in trade”.

According to George Lazaridis Head of Market Research & Asset Valuations, with Allied Shipbroking, “being primary commodities that consumers heavily rely on and with their demand not directly dependent on what investors do, means that even during periods of poor economic performance and uncertainty the trade can thrive. With the world’s population increasing at a fast pace and with more and more people being included in the middle-class income group, they generate an exponential growth in demand for grain commodities. At the same time the fact that grains are perishable goods creates a market condition whereby prices will heavily reflect the prevailing demand and supply and help market clearing in the favor of increased trade”.

Allied’s analyst added that “it is no surprise therefore that as the supply glut has hit the market over the past couple of years, prices have tumbled while trade volumes have grown strong. Amidst all this, it has been the vessel size segments which play a more active role in the grain trade that have stood to gain the most. Panamaxes and Supramaxes have been helped considerably in this regard, despite the fact that these were also the size segments with the most extensive orderbook schedule for the year and have faced the highest growth in fleet size. Handysize vessels haven’t been left out either, focusing on trades where they can keep their competitive edge due to size restrictions. This has been something prevalent since early spring and with the U.S. Gulf showing bumper volumes of late, it looks as though it could continue to be the case”.

Lazaridis went on to mention that “there are however several negative side effects and risks that emerge from all this. Firstly as the dry bulk market starts to become ever more reliant on the grain trade, it also becomes more susceptible to its seasonalities and the wide volatility they bring along. The grain trade has always been one of the main drivers in freight rate seasonality and it looks as though it will start to play an ever increasing role, creating larger variances between the highs and lows in freight rates noted during the course of a year. In addition to this, the grain trade is more unpredictable, relying to a greater extent on weather patterns and crop yield, something which may leave risks of slower volumes traded even during periods of high global economic growth”.

“Secondly the decisions made in terms of production are slow to shift, leaving a big time lag which could have compounding adverse effects. We may well be seeing a glut in supply now, which in turn may lead to the planning by farmers for decreased production volumes during their next harvest. This may well help balance the market and be to the benefit of the farmers, but is in direct contrast to the interest of the shipping industry as it could mean a slower or negative growth in trade volumes. Grains may have played a vital role in the recent market recovery and will likely play an ever increasing role from here on, however they also add to the risks and volatility the dry bulk market will experience moving forward”, Lazaridis concluded.

Nikos Roussanoglou, Hellenic Shipping News Worldwide