In the course of my analysis of Singapore Shipping, I came across the annual report of Precious Shipping – a Thai dry bulk shipping company – which contains the most over-elaborated explanation of a business and industry that I have ever come across. Nevertheless, I felt that some of the information, while merely factual, is useful in enhancing one’s understand of the industry. As an introductory piece, we will be covering 5 facts about the shipping industry.
1. Shipping Industry There are 11 vessel classes
This chart provides a good overview of the vessel types and sizes. Car carriers are also called Roll-on Roll-off (RoRo in short). Pure Car/Truck Carrier (PCTC) is another term for car carriers. DWT stands for deadweight tonnage and refers to the amount of weight a ship can safely carry or is currently carrying. It does not include the weight of the ship itself. Demand for the Handysize market is less volatile compared to larger ships as it is able to cater to a wide variety of cargoes and is able to berth at smaller ports.
2. Shipping Industry – Average world fleet age is 12.4 years
According to the data above, we estimate the average world fleet age to be about 12.4 years. For investors vested in ship-builders, another noteworthy figure would be the proportion of fleet above 25 years which is the typical economic lifespan of a ship.
3. Shipping Industry – Fleet supply net increase is difficult to predict
The table below lists some of the demand and supply factors of the freight market.
The net change in fleet size is the difference between the number of vessels removed and the number of vessels added. However, the volatility of slippage and scrapping makes it difficult to predict the net increase of DWT of ships with any real accuracy. Slippage is the difference between the DWT of new ships on order at shipyards at the beginning of the year and the actual deliveries of DWT of new ships at the end of the same year. Slippage occurs when orders are cancelled or delayed. Slippage has averaged around 35% in the past 5 years. Normal slippage is about 5%, according to McQuilling Services LLC – a New York-based shipping consultant.
4. Shipping Industry – The Baltic Dry Index (BDI) is a composite index
The BDI is an indicator of spot dry bulk cargo market rates, calculated by the Baltic Exchange. It is a composite of an average of the time charter rates (TC) of Capesize, Panamax, Supramax and Handysize vessels on certain shipping routes. The formula for computing BDI is as follows:
0.113473601 x (Capesize TC + Panamax TC + Supramax TC + Handysize TC)/4
5. Shipping Industry – The BDI is near its all-time low
At its last close, the BDI was at 637 versus its all-time low of 554 in July 1986. That’s right, the oil and gas industry isn’t the only one in a down cycle.