Capesize vessels are witnessing early signs of a market recovery, driven by tight fleet supply and increasing cargo volumes in the Atlantic. This optimistic outlook was shared by traders from Cargill Ocean Transportation and Mercuria Shipping during a panel discussion at the 9th Capital Link Cyprus Shipping Forum in Limassol.
Capesize vessels: Insights from Industry Experts
The panel featured insights from Tim Barrett, Capesize global trading manager at Cargill Ocean Transportation, and Carl Dacombe, head of Capesize trading at Mercuria Shipping, with Polys Hajioannou, founder and chief executive of Safe Bulkers and president of the Cyprus Union of Shipowners (CUS), moderating the session.
Market Fundamentals Strengthen
Barrett and Dacombe noted that the fundamentals of the Capesize market appear stronger than current freight levels suggest. They highlighted a combination of limited fleet growth, ageing vessels, and increasing cargo flows as key factors contributing to a tightening balance in the market, as reported by Newmoney.
Impact of Regulatory Changes
Barrett pointed out that European environmental regulations, particularly the EU Emissions Trading System, are significantly impacting voyage economics. He stated, “On some voyages, 10 – 15 per cent of the total cost is now related to regulatory burdens that did not exist a few years ago.” This shift in financial dynamics favours newer tonnage, although older ships remain integral to certain trades.
The Ageing Fleet Challenge
A significant portion of the Capesize fleet is over 15 years old, with more than 15 per cent exceeding 20 years of age. Despite their age, these vessels continue to operate in trades such as West Africa, where the age limits for ships are more flexible. Barrett emphasised the need for a balanced portfolio, stating, “There is room for both younger and older ships.”
Supply Constraints and Future Demand
Dacombe elaborated on the constrained supply growth within the Capesize segment, revealing that the orderbook accounts for less than 5 per cent of the existing fleet in the coming years. He noted that replacement needs are increasing, stating, “Fundamentally, we have limited supply and we expect demand to increase, particularly from West Africa and Brazil.” This could indicate that the market is “in the early stages of a new upturn.”
Capesize vs Newcastlemax: A Competitive Landscape
The panel also discussed the competition between standard Capesize vessels and the larger Newcastlemax design. Barrett acknowledged that Newcastlemax vessels have a structural efficiency advantage due to their higher carrying capacity and only marginally higher fuel consumption. However, he noted that port limitations can sometimes allow Capesize vessels to command premiums.
The Importance of Fleet Diversity
Barrett underscored the necessity of a balanced fleet, stating, “We want a balance of the fleet. Each type of ship has its role.” He also highlighted the growing use of digital voyage-assessment and route-optimisation systems, which assist in managing compliance and commercial risk. “They are decision support tools, not autopilots,” Barrett clarified.
Factors Driving Freight Rate Increases
The discussion touched on the sharp rise in freight rates experienced late last year. Dacombe identified three primary drivers: tightening capacity in the North Atlantic, increased cargo flows from West Africa, and heightened activity in forward freight agreements. These elements have created a more dynamic trading environment.
Influence of Derivatives on Trading Behaviour
Finally, Dacombe remarked on the evolving nature of trading behaviour, noting that “derivatives now influence trading behaviour more strongly as operators increasingly manage both physical and financial exposure simultaneously.” This trend underscores the complexity of modern shipping logistics and the need for adaptability in the market.
