Business, Freight News, Sea

Bright Outlook for Dry Bulk Market, Drewry

[ January 10, 2025   //   Gary G Burrows ]

The dry bulk market is poised for an upside in earnings as global and regional environmental regulations will reshape vessel supply, according to Drewry’s quarterly Dry Bulk Forecaster.
The higher earnings are coupled with higher fragmentation in the freight market as vessel movement will continue to adapt to comply with the regulations.
While the outlook for GDP growth is marginally higher for 2025, shipping demand is projected to be resilient, driven by coal and grain trade, Drewry said. The recovery in advanced economies is expected to materialize after a lag. Europe’s industrial activity remains lackluster even though the economy is past the trough. The consecutive decreases in borrowing costs by the European Central Bank are expected to improve market sentiment and boost industrial activity in 2025.
Growth projections in China have been truncated for 2025, dampening the expectation of demand recovery in the domestic market, the maritime research provider said. The country’s steel consumption is expected to be subdued even though higher exports of steel will offset the weak domestic demand. Higher exports to farther locations will provide relief to the shipping market. Drewry believes the recent stimulus will prevent a free fall, but this is unlikely to revive domestic consumption and market sentiment immediately given the persistent deflationary trend.
However, this is juxtaposed with ample imports for thermal coal, grains and bauxite in China, aiding shipping demand. Even though hydropower generation has improved marginally, high power consumption will keep the coal import volume elevated.
Additionally, thermal coal imports will remain buoyant in India and the Southeast Asian economies while demand in the EU will be subdued as the Continent strives to move away from fossil fuels.
Grain trade will provide more avenues for sustained demand, with high exports from Russia, Australia and Brazil. Russia’s annual export volumes are likely to be the second-highest historically in 2025, after peaking in 2024. Dampened exports by France will create opportunities for larger exports to Africa, aiding shipping demand.
China’s ratification of sorghum imports from Brazil will increase shipments from 2025, in line with the country’s aim of diversifying its trade partners. China, the world’s largest sorghum importer, sources 7 million tonnes per annum on average and plans to diversify by commencing imports from Brazil. The U.S. accounts for 56 percent of global sorghum exports and 94 percent of the shipments head towards China. The impact of this diversification will also be evident in coking coal trade as the country will be able to source more coal from Mongolia with the start of additional railway networks next year.
U.S. trade relations after Trump assumes office face the pronounced impact of the new administration will be on major trade partners such as China. Given the precedence of a tumultuous relationship during 2016-20, it is not unlikely that U.S.-China trade will be directly impacted. U.S. soybean imports to China, the largest market for U.S. agricultural goods, hit rock bottom in 2018 due to escalated trade tensions. Grain trade also remained low until an agreement was reached in 2020 between the two countries.
Drewry does not expect the impact to be like Trump’s previous term, though the fear of tariffs will reshape trade from the beginning of 2025 itself. With soybean imports from the U.S. already expedited into China in Q4 2024, the lull could be more pronounced in Q1 2025.
Moreover, countries neighboring the U.S. will also face the heat with the recent announcement of a 25 percent tariff on imports from Canada and Mexico. It is more likely that the duties will be included in higher import prices of commodities as major imported goods into the U.S. from these two countries (such as aggregates, iron ore and cement) would still be more economical than shipments from farther locations. Any retaliatory measures are unlikely to disrupt trade as Mexico’s dependency on U.S. corn persists.
The rerouting of vessels will persist, keeping the transits through the Suez Canal at the current low levels. Even though transits through the Panama Canal will continue to gravitate towards normal levels, geopolitical tensions and the related uncertainties will induce higher shipments from Cape of Good Hope, leading to longer voyages. As more tonnage will be employed for longer durations, the flex available in the supply will be lesser, which will in turn support rates.
There are strong supply fundamentals in the market for 2025 as the scheduled deliveries remain modest and shipowners are increasingly resorting to curb vessel speed to comply with the CII regulations, which together will limit supply growth.
Not only has the speed been reducing across vessel segments, but the trend has varied across different aged vessels due to the higher preference for younger vessels, particularly in regions such as Europe, leading to higher fragmentation in the charter market. This trend will continue in the coming year with the enforcement of the FuelEU Maritime regulation from January 2025. Even though its immediate impact will be minimal in terms of cost, shipowners’ strategies for compliance will raise freight costs in the region, in line with the impact of the EU ETS.
Dry bulk vessel supply will adapt to the intensifying environmental regulations. Coupled with the rerouting of vessels and low deliveries will create buoyancy in charter rates in 2025. The recovery in industrial activity and steel production hinges on lower borrowing costs in advanced economies whereas demand for coal and grain will support trade. Despite the fear of tariffs by the U.S. and frontloading of exports, the degree of impact on trade volume is unlikely to be as intense as during 2016-20. Hence, the resilient demand for commodities alongside the modest expansion in vessel supply will drive charter rates to tread upwards in 2025.

Tags: Drewry