The extremely high demand for one type of ship may affect the supply and demand fundamentals of different types of ship types. Recently, the spillover effect of strong demand for container shipping is boosting the fundamentals of dry bulk shipping, pushing its spot rates to the highest level since the 20th century.

Transfer effects between ship types

Market effects are mainly transmitted from one shipping sector to another in three main ways:

First, ships have changed the type of cargo they load, for example, coated tankers can transport both refined oil and crude oil;

Second, the cargo has changed the type of carrier, for example, when the rent of dry bulk carriers rises, some grain shippers turn to container transportation;

Third, Asia's shipbuilding capacity is in short supply. The most extreme example is the shipping supercycle of 2003-2008, when demand for new container ships, bulk carriers, tankers and LNG carriers surged simultaneously, with each ship type competing for capacity with the others, driving up the cost of newbuilding in each segment.

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

Containerized cargo began to shift to bulk carriers

John Wobensmith, CEO of Genco Shipping & Trading, said: "This year is the best start in 10 years for dry bulk shipping.

Eagle Bulk CEO Gary Vogel recently said that the 45,000-60,000 dwt Supramax models have begun to benefit from the spillover effect of consolidation. Recently, the company shipped bagged cement and other goods from China to Guatemala, and bagged fertilizer to Peru and Chile. This route is usually the outbound route for container ships and the return route for dry bulk shipments.

The higher the return volume, the higher the capacity utilization of the round-trip route. I'm interested in everything about the container market right now, because it has a profound impact on our freight rates and trading patterns.

Container ship orders squeezed new orders for other ship types

Hugo DeStoop, CEO of tanker owner Euronav, said new orders for container ships and LNG carriers have squeezed room for new orders from tankers.

The dry bulk segment was also affected. Loukas Bomparis, President of Safe Bulkers, said: "Most shipyards are at full capacity and are filled with containers, tankers and other vessel types. ”

Vogel noted that dry bulk carriers are at a historically low level with orders in hand, representing only 5.6% of the existing fleet. New orders in the first quarter of 2021 were 33% below the quarterly average for 2020.

The cost of new ships has also risen. Currently, the cost of the 60,000-65,000 DWT Ultramaxes for delivery in the second half of 2023 and beyond is $27 million-$29 million.

Shipyard capacity is "shrinking rapidly" due to the acceleration of the pace of ordering in other shipping sectors. Record-breaking orders for large container ships over the past few months, coupled with orders for other large vessels such as VLCCs, have seen shipyards' capacity quickly fill up with these longer-building, more attractive orders.