Dry Bulk recovery in Q1

By Michalis Voutsinas

As the first quarter of 2025 draws to a close the dry bulk market has witnessed a mild recovery in this term. The Cape sector has been the better performer having closed today at the Baltic Exchange time charter average of $ 20,500 and twice the value recorded in the first days of January. The other categories were less vigorous with gains of 10-30%

With both the Russia-Ukraine and Middle East wars unresolved, though mostly factored into trade patterns and dynamics established over the last two years, new wars in the form of tariffs on trade and threatened penalties on Chinese built or operated vessels have thrown new curve balls to the bulk sector. The USA is the main pitcher with tit-for-tat in the works. The re-pricing of cargoes at destination as a result of tariffs is starting to bear on traders margins with adjustments to trade flows bound to occur. With international trade being the equalizer of comparative advantages between the various participants, tariffs are likely to be a drag on aggregate cargo demand as a less efficient state of affairs will ensue. History has shown us repeatedly that trade is fungible and will find its way around, one way or another, sometimes at the expense of less cargo flows.

The threat of USA authorities penalizing with a heavy port user charge anything Chinese in the logistical chain to and from its shores is another issue of concern for all stakeholders involved. Whilst the jury is still very much out on this, uncertainty has already played into a two tier market with the increased freight rates being passed on to the USA consumers and producers.

If this trade turbulence continues, the USA and global economy will face inflationary headwinds with reduced global GDP and slower trade. The demand side of the bulk cargo space, estimated to be at zero to 1% trade growth in 2025, is bound to slow down further as a consequence.

On taking stock of the supply side, with an orderbook to fleet ratio of circa 10%, some 3% additional bulker supply will enter the water in 2025. Scrapping, currently at a trickle, may remove some vessels however not move the needle by much. The container sector, whilst a seemingly different space, is facing a huge 28% orderbook to fleet ratio with circa 10% to be delivered this year following on from a similar rate in 2024. The extra supply of TEUS is bound to encroach further into the bulk arena which will loose some of its much needed demand especially in the break-bulks. Whist not easy to measure how much cargo will migrate to containers we believe it is much more than meets the eye. One just has to look back to the heady days of 2021/2022 when it was the cargo spillover in the opposite direction , from the containers to bulkers , that gave the geared bulkers outsized earnings to fathom the swing potential here. Not a good scenario for bulkers, which may be amplified if the Houthi attacks are finally put to bed and the liners resume transit through the Red Sea.

As we embark on the second quarter, Owners would be hoping that the seasonal uplift may partly offset the deteriorating demand-supply equilibrium or that a Black Swan comes to the rescue yet again.

Data source: Doric