The interconnectivity of ocean transportation and the extremely high demand for one type of ship may affect the supply and demand fundamentals of different types of ship. Recently, the demand for container transportation has been strong, and its spillover effects are boosting the fundamentals of dry bulk shipping, pushing its spot freight rates to a high level since the 20th century.

Transfer effect between ship types

The market effect is mainly transmitted from one shipping sector to another through three ways:

One is that ships have changed the type of cargo they load, such as coated oil tankers that can transport both finished oil and crude oil;

The second is that the goods have changed the type of transportation, for example, when the rent of dry bulk carriers increases, some grain shippers turn to container transportation;

Thirdly, the shipbuilding capacity in Asia is in short supply. The most extreme example is the shipping super cycle from 2003 to 2008, when the demand for new container ships, bulk carriers, oil tankers, and LNG carriers surged simultaneously. Each type of ship was competing with others for production capacity, thereby raising the cost of new shipbuilding in each sector.

Currently, spillover effects of the second and third categories have emerged.

Container cargo begins to shift towards bulk carriers

John Wobensmith, CEO of Genco Shipping&Trading, stated that this year's dry bulk shipping has achieved its best start in 10 years.

Eagle Bulk CEO Gary Vogel recently stated that Supramax models ranging from 45000 to 60000 deadweight tons have begun to benefit from the spillover effects of consolidation. Recently, the company has shipped bagged cement and other goods from China to Guatemala, and bagged fertilizers to Peru and Chile. This route is usually the outbound route for container ships and the return route for dry bulk cargo transportation.

The larger the return transportation volume, the higher the utilization rate of the round-trip route's transportation capacity. I am very interested in everything about the current container market because it has a profound impact on our freight rates and trading models.

Container ship orders squeeze out new orders for other ship types

Hugo DeStoop, CEO of oil tanker owner Euronav, stated that new orders for container ships and LNG carriers have squeezed the space for new orders for oil tankers.

The dry bulk sector has also been affected. Loukas BomParis, President of Safe Bulkers, said, "Most shipyards are at full capacity, filled with container, tanker and other types of ships

Vogel pointed out that the number of orders held by dry bulk cargo ships is at a historical low, accounting for only 5.6% of the existing fleet. The new orders in the first quarter of 2021 were 33% lower than the quarterly average of 2020.

The cost of new ships has also increased. At present, the cost of Ultramaxes vessels with a capacity of 60000-65000 DWT to be delivered in the second half of 2023 and beyond is between 27 million and 29 million US dollars.

Due to the accelerated ordering speed of other shipping sectors, the production capacity of shipyards is rapidly shrinking. In the past few months, records have been set for orders for large container ships, coupled with orders for other large vessels such as VLCC, quickly filling shipyard capacity with these longer and more attractive orders.