Impact of Covid-19 on Dry Bulk Market

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It will surprise nobody that year on year charter rates retrenched between 2019 (pre pandemic) and 2020 (post pandemic).  What may surprise is that the level of the decline was not as severe as may have been expected in a market dependent on cargos moving freely around the globe. With restrictions on travel, economies closing down, and China in particular at the center of the crisis in the early part of the year, it might have been reasonable to suspect that 2020 would have marked a new low point for dry bulk shipping.

However, market data indicates that the fall in the average annual dry bulk charter rates between 2019 and 2020 was 20%. Though not an insignificant number the result did not represent the deep retrenchment that may have been anticipated in the circumstances. Indeed, with activity in China picking up during the latter part of the year, market data shows that rates at the end of 2020 were, on average, higher than at the end of 2019. Furthermore, average rates remained well above those seen during the previous downturn in 2016, with the Baltic Dry Index averaging 1,066 points in 2020 compared to 673 in 2016. That said, average rates in 2020 reached there lowest levels since the last recovery from the market downturn which ended in 2016.

With rates having picked up at the end of 2020, the outlook for 2021 at the beginning of the year seemed reasonable, with BDI forwards indicating a 12% improvement, thus recovering much of the ground lost in 2020.

Looking at actual performance over the first 5 months of 2021, dry bulk rates would appear to have actually performed more strongly than anticipated at the end of 2020, with the BDI currently standing at 2,669, up approximately 93% from 1,380 at the end of 2020. In addition, it is noted that while the current level remains strong, this is after a slight decline following a peak of circa 3,260 being reached at in early April 2021.

In the interest of providing a little more context, market data indicates that the 1 year time charter rate for a 2012 built, 36k dwt ship has improved from an average of US$8,575 per day in 2020, reaching US$12,600 per day in Q1 2021, and expected to reach US$15,500 per day in Q2 2021

Looking back the BDI is now at the strongest levels seen over the past 5 years, and is indeed at levels not seen since 2010. Key to the rise in the BDI has been Improving demand from economies recovering from the impact of the Corona Virus’ which has more than offset the effects of China’s efforts to limit rising commodity prices.

For a volatile market such as the dry bulk sector, it is encouraging  to see the level of resilience displayed during such unprecedented challenging times and the bounce back the market is enjoying. Long may it continue.

Douglas Newton : Head of Sector, Maritime Sureties