A broad cargo mix, de-containerisation and a record-low orderbook are putting handysize bulkers on a par with bigger vessels in terms of earnings power these days. Michalis Voutsinas, head of research at Greek shipbroker and Baltic Exchange panelist Doric Shipbrokers, expects a healthy market »around current levels« also for next year.[ds_preview]
The rise and rise of handysize charter rates beyond 30,000 $ is remarkable. Other segments are showing greater volatility. What‘s driving the increases?
Voutsinas: 2020 set the scene for one of the most impressive first half-years. Pent-up consumer demand and increased public spending contributed to a robust recovery, pushing container and dry bulk freight rates higher. This was further augmented by the impact of Covid-19 on congestion and port delays. In fact, the active fleet decreased as the number of vessels caught up in congestion increased. Finally, record high container freight rates forced some shippers to turn to bulk or ro-ro trades, incrementally supporting Baltic indices, and predominantly those of the geared segments. Growth in regional trade, a strong rebound in minor bulks and ‚de-containerization‘ have unfolded nicely, especially for the handysize.
How significant is the overflow of cargoes from the booming container market?
Voutsinas: The first such cases can be traced back to early February. Since then, volumes of goods including bagged rice, cement, fertilisers, semi-finished steel parcels and general cargo continue to flow into the dry bulk and break bulk sectors. Even though there are no signs of a slowdown, the effect of these new trades is rather limited given the volumes involved. That being said, in a firm market, any marginal increase in demand can actually have a material impact on balancing levels.
How much more upside is there for the (handysize) spot market?
Voutsinas: Setting aside the external boost from the »de-containerization« trend of late, much of the segment‘s future will depend on its own supply and demand dynamics. The handysize orderbook hit an all-time minimum of circa 6 % of the fleet due to low contracting activity. Uncertainty over eco-friendly vessel designs and future zero-carbon fuels is keeping investors away from the yards. With this tendency remaining relatively stable, freight rates found another pillar of support, this time from the supply side of the market. As far as demand goes, minor bulks tend to follow GDP growth, and with 6 % expected for this year fuelled by vast stimuli, the outlook for minor bulk demand is very positive. Looking ahead to next year, developments on both sides of the market are supporting a very healthy trading environment around current levels.
The handysize business is often referred to as stable, conservative, less volatile. How do you see the evolution of handy operations in the longer run?
Voutsinas: Following developments in port facilities and staple trade runs, the average size of a typical handysize kept increasing during the last 15 years. In fact, the new design handysizes are quite nimble, very fuel-efficient and as a consequence can offer freight at dollar-per-ton shipped not much higher than the larger handymaxes and supramaxes. This goes partly against the conventional economy-of-scale narrative and hence raises the relative earnings of the handysize. In anticipation of the new IMO regulations along with increased activity in regional trades, the handy segment is about to enter a new captivating era. (mph)
