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

Transfer effect between ship types

The market effect is mainly transferred from one shipping sector to another in three ways:

First, ships have changed the type of cargo loaded. For example, coated oil tankers can transport both refined oil and crude oil;

Second, the cargo has changed the transport ship type. For example, when the rent of dry bulk carriers rises, some grain shippers turn to container transport;

Third, Asia's shipbuilding capacity is in short supply. The most extreme example is the shipping super cycle in 2003-2008, when the demand for new container ships, bulk carriers, oil tankers and LNG carriers surged at the same time. Each ship type competed with other ship types for capacity, thus raising the cost of new shipbuilding in each sector.

At present, the second and third types of spillover effects have emerged.

Container cargo begins to turn to bulk carrier

John Wobensmith, CEO of Genco Shipping&Trading, said: This year's dry bulk shipping has had the best start in 10 years.

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

The greater the return traffic volume, the higher the utilization rate of round-trip routes. I am very interested in everything in the container market at present, because it has a profound impact on our freight rates and trading patterns.

Container ship orders squeeze new orders of other ship types

Hugo DeStoop, CEO of Euronav, an oil tanker owner, said that new orders for container ships and LNG carriers squeezed the space for new orders for oil tankers.

The dry bulk sector was also affected. Loukas Bomparis, President of Safe Bulkers, said: "Most shipyards have full capacity, which is filled with containers, oil tankers and other ship types."

Vogel pointed out that hand orders of dry bulk carriers were at a historical low, accounting for only 5.6% of the existing fleet. The new orders in the first quarter of 2021 are 33% lower than the quarterly average in 2020.

The cost of new ships has also risen. At present, the Ultramaxes ship type cost of 60,000 to 65,000 DWT delivered in the second half of 2023 and later is 27 million to 29 million dollars.

Due to the accelerated pace of ordering in other shipping sectors, the capacity of shipyards has "rapidly shrunk". In the past few months, the order of large container ships has set a record. In addition to the order of VLCC and other large ships, the capacity of the shipyard has been rapidly filled by these more attractive orders with a longer construction period.