Overcapacity and low fuel prices are bound to keep low dry bulk shipping freight rates for the rest of the decade or even longer, according to investment bank Goldman Sachs.
With the daily charter rates dwindling, the bank predicts that the average utilization rate of the dry bulk shipping fleet will decline to 70 percent over 2015 to 2019 from the previously reported 90 percent during the previous five years.
“Faced with the risk of leaving vessels idle over long periods, we believe that ship owners will continue to charge low charter rates. This compounds the impact of lower fuel prices, resulting in a period of cheap freight that should last until older vessels have been scrapped in sufficient numbers to balance the market. We expect low freight rates to persist at least until the end of the decade,” the bank is quoted by Reuters as saying.
The bank said that the beneficiaries of low freight rates would benefit large iron ore and coal producers as they can access new markets, while high cost producers would suffer from greater competition and a declining share of their regional markets.
The downturn of the Baltic Dry Index (BDI) during the first quarter of 2015 has seen the BDI reach a new record low at 522 points leaving dry bulk vessel owners in dire conditions, especially since there were no signs of recovery.
As a result, the Q1 earnings have dwindled across the board, resulting in almost nonexistent interest in the newbuilding market.
A mild recovery seems to be on the horizon, however shipowners remain pessimistic with respect to short-term outlook.