2nd Annual Bulk Carrier Alternative Fuels Survey
Last year we launched our first Bulk Carrier Alternative Fuels Survey in association with our friends at Ship.Energy, and the results are still available to read at www.ship.energy.
We are running the survey for a second time this year. We will be interested to see any change in responses.
We have run our container ship decarbonisation survey twice now and there was definitely a hardening of attitudes this year compared to last year, with fewer “don’t know / not allowed to say” responses, greater enthusiasm for carbon pricing and R&D levies, and greater acceptance of newbuildings with ammonia or even hydrogen fuel capability after 2030.
The dry cargo freight markets appear to have peaked in May this year following a bull run stretching back to the middle of 2020. The downward correction has been a consequence of China’s economic malaise, itself a symptom of the coronavirus pandemic, disruption caused by the Ukraine war, and slowing construction markets globally as central banks raise interest rates and the cost of doing business rises for everyone whose domestic currency is not the USD.
The fall in earnings is not as bad as it is for container ships, but day rates for bulkers have settled down into the mid-teens of thousands of dollars – good for a Handysize, less impressive for a Capesize. Still, the lower rates are not enough for owners to consider selling older tonnage for scrap, despite very high prices being offered by scrap dealers. In Q3, just five vessels were reported removed from the global bulk carrier fleet. Four were sold for demolition and one was a total loss (the mysteriously named OS 35, a 1999-built Handysize). The Manistee (1943 built 14k Dwt) was added to the list of demolished ships after some delay, having been laid up in the US for some time. Removals from the fleet totalled just 349 k Dwt for the quarter.
Against this backdrop, orders for new bulk carriers are falling. In the first half of 2022, 112 bulk carriers totalling 7.63 Mn Dwt were ordered including five Capesizes (90-199 k Dwt) three Newcastlemaxes (200-220 k Dwt), 28 Kamsarmax and Panamax ships, 40 Ultramax / Supramaxes, 28 Handymaxes and eight Handysizes. The Handymax can officially be declared back in fashion. Those totals increased by the end of Q3 to 161 bulkers of 11.17 Mn Dwt including 7 extra Newcastlemaxes, 2 Capesizes, 3 Post-Panamaxes, 43 Panamax and Kamsarmax types, 55 Ultramaxes but no Supramaxes, 39 Handymaxes, 11 Handysizes and one small vessel.
The orderbook remains muted at 7% of the fleet overall for delivery dates stretching into 2025. 7% doesn’t sound much but it is still 66.18 Mn Dwt. By segment, the orderbook for VLOCs is just 1% of the fleet. For Capsizes, it is 7%. For Panamaxes, 9%, for Supra and Ultramax ships, 8%, for Handymaxes, 12% (because the fleet has shrunk for the last 20 years) and for Handysizes, 3% (kept low by the revived fashion for Handymaxes).
Recent bulk carrier orders mostly specify the latest generation of super-efficient, conventional fuel oil engines, though fuel saving technology like propeller bosses, aerodynamic topsides, air lubrication, and waste heat recovery systems are increasingly common.
Bulker owners appear more reluctant than, say, containership owners, to embrace low carbon fuels. This is probably due to greater uncertainty about fuel availability, which is a function of how the different markets operate. Container ships sail to a schedule, so their operators know pretty well what fuels they need and when. Therefore they can negotiate with fuel suppliers to have bunkers available as required. Bulk carriers mostly operate as tramp ships, with no certainty over where their next cargo will be loaded. This is more the case for the more flexible, smaller geared ships, than for instance the Capesizes, which are more usually to be found on standard repeat voyages like Brazil-China or Australia-China.
In just a few weeks time the EEXI and CII will come into force. Will bulk ship owners be satisfied with a C, D or E rating for the first couple of years? Will there be a hire rate premium for ships with an A or B rating, or a discount for ships with a D or E rating? Will there be a rush to the shipyards to retrofit emission-reducing technology? Will there be a tacit agreement that everyone will just slow down to cut their emissions by consuming less fuel? How will charterers react if that pushes up freight rates?
Until the new regime has been in place for a year or more, these questions are unanswerable for certain, but most of us have an opinion about what is likely to happen. Ask yourself, where then will the motivation to decarbonise bulk carriers originate? From owners, from their charterers? From regulators? And what technologies will be best suited to bulk carriers?
And as the global economy decarbonises, what will happen to demand for bulk carriers and to traditional trade routes?
For instance, iron ore makes up about one third of all dry bulk demand. The biggest importer is China, which accounts for about half of the global annual seaborne trade in the red rock. Yet as its domestic construction market has begun to implode, China’s steel production has stopped growing, having reached a peak in September 2021 of around 2.2 million tonnes per day. The biggest losers from this levelling out are iron ore exporters from the Americas. Brazil’s iron ore exports, when measured in tonne-miles, are down 13% year on year for January to September. Chile’s are down 23%, and Canada’s down 5%. Meanwhile, China’s imports of iron ore sourced from South Africa are up 2% and from Australia they are up 1%. This means lower tonne miles – and therefore lower emissions – on overall iron ore shipments this year compared to last year, with no change in the technology in use.
China meanwhile has a policy to increase recycled steel from 20 to 30 per cent of the total consumed annually, by 2030. Steel recycling is done in electric arc furnaces, which don’t consume iron ore or coking coal. So what are the prospects for iron ore shipping in the years to 2030? Hardly positive, one might say. So iron ore shipping could decarbonise by default – from lower demand.
Coal makes up another third of bulk carrier cargoes. But coal’s days are surely numbered if the global economy is truly to decarbonise. Already many western countries have stopped using thermal coal for power generation, though its use continues to grow in some emerging and developing economies. Globally, coal shipments peaked in 2019 at 1.44 billion tonnes, before falling in the pandemic year of 2020 to 1.29 billion. There was a rebound to 1.38 billion in 2021 and, if the trend of the first nine months of 2022 continues, total coal shipments this year could be 1.39 billion tonnes, slightly up. In tonne-mile terms, the total for 2021 was 4.92 trillion and the estimated total for 2022 is 4.93, again up a very small percentage.
China is still building coal fired power stations, but it increasingly relies on domestic coal production and plans to increase it by 300 million tonnes per annum, nearly enough to reduce thermal coal imports from 322 million tonnes in 2021 to zero. For the first nine months of this year, China imported 177 million tonnes of coal. Annualised, that would equate to 235 million tonnes for the full year, a 27% fall compared to 2021 and the lowest import volume since 2017. Has China passed peak coal imports?
There has been much talk of growth in Indian coal imports, but the data tell a more varied story of a peak in import volumes of 245 million tonnes in 2019, with 217 million tonnes in 2020 and 199 million tonnes in 2021.This year, 183 million tonnes was imported in the first nine months, which indicates an annual total of 244 million tonnes. Time will tell if this in an outlier or a return to import growth longer-term.
So there are doubts over the long-term demand growth prospects for two-thirds of bulk carrier cargo volumes, with implications for shipping demand for non-ferrous ores, timber and construction materials such as steel. Only agricultural cargoes such as wheat, coarse grains and soyabeans are almost certain to grow in the coming decades as the human population continues to grow. But if world human numbers peak in the second half of the century, even that growth could come into question.
There is then much to ponder when it comes to decarbonising dry bulk shipping markets. Have your say and spend a minute completing our ten-question survey. We will publish the results in December.
PS the responses are anonymous – we don’t collect your IP address or any other personal information.