A Drastic Slowdown in Contracting Signals Caution Among Shipowners

The dry bulk sector is experiencing a sharp decline in newbuilding activity, with contracting levels plummeting 70% below the annual average in recent months. This slowdown reflects the challenges shipowners face amid falling freight rates, economic uncertainty, and hesitation over future fuel choices.

In October 2024, the Baltic Dry Index (BDI) fell 15% month-on-month, continuing its downward trajectory into November, where it stood 16% lower than the previous year. The decline is driven by weaker Chinese demand, increased steel recycling reducing iron ore shipments, and improved Panama Canal conditions easing previous congestion. These factors collectively dampen the outlook for bulk carrier employment, leading shipowners to rethink fleet expansion plans.

Adding to the reluctance to place new orders, the cost of newbuildings remains high, while the price of five-year-old second-hand bulkers has dropped by 7% since August 2024. As a result, modern second-hand vessels have become a more attractive alternative, trading at around 90% of newbuilding prices. This price disparity further discourages investment in new tonnage.

Despite the downturn in contracting, the current dry bulk order book stands at 10.4% of the fleet—a level sufficient for fleet renewal under stable market conditions. However, with stricter environmental regulations looming, a market correction may be on the horizon. The industry will eventually need to replace aging vessels with more efficient, low-emission ships, potentially leading to a rebound in new orders. Until then, shipowners appear content with a wait-and-see approach, prioritizing financial prudence over speculative fleet expansion.

Dry Bulk Contracting Collapse – Data & Implications