Shipbuilding has a normal lead time of about 3 years from contracting to delivery. Up to the 2000's, the global bulk carrier fleet grew incrementally with trade but with no spectacular changes. China's industrial demand increased at the beginning of 2000 and the freight boom started. Between 2004 and 2008, Ship Owners made super-profits with the 'constrained' world fleet while Shipyards booked new contracts at double what they had achieved a few years earlier. In this same freight bubble, container ships, LNG and oil tankers were in demand, leading some Shipyard to spurn simple bulk carriers in favour of higher margin ships. Oil tankers were being converted in to bulk carriers.
Had China's shipbuilding industry not ramped up, the AM believes that Korea and Japan could not have satisfied this spike in demand for new tonnage. But ramp up it has, and the massive increase shown here - in 82,000 DWT KamsarMax and 180,000 DWT Capesize - is testament. This chart doesn't include ore carriers larger than 208,000 DWT. These ships are the workhorses of the coal and iron ore trades
The only way this massive oversupply situation is going to correct is though the voluntary scrapping of young ships - 15 year old ships with another 10 years trading ahead of them in better market conditions. Oil tanker owners have started the painful, but necessary process of scrapping double-hulled ships to reduce supply. Plunging asset values and slow steaming are the other side effects of an over-supplied market. The ship you sold yesterday becomes your competitor tomorrow.
News since drafting this post is that China has officially closed the door to any VLOC larger than 300,000 DWT on 'port safety grounds', effectively bowing to internal pressure from it's own ship-owning community. Will the balance of Vale's 400,000 DWT ore carrier fleet ever see service?
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