Fun with numbers!

From 1990 to 2004 the bulk carrier fleet increased 49% measured in deadweight, but only 19% in number of vessels. The average age of ships being demolished during the period was about 25 years and the average age of the fleet was, generally speaking, stable at around 12.5 years. From this we can conclude that the average size has increased considerably (+26%, from 43 kdwt to 54 kdwt); in normal circumstances a bulk carrier has a lifetime of 25 years and there is an addition of new tonnage which roughly balances out tonnage taken out of service.

In the past four years 93 mdwt has been added to the fleet, but less than 3 mdwt has been removed. It is no surprise that as freight and values sky-rocketed, this has resulted in the average age of demolition rising to 29 years. Now, going back to the order book. As we stated above, at 250 mdwt it equals the entire fleet built before 2001. It is hard to fathom, but interesting to note that the average size the bulk carrier order book is 91 kdwt. In terms of numbers, the order book equals approximately the size of the existing fleet built up to 1988. This age segment of the fleet amounts to 2673 vessels totalling 115 mdwt. Hence, the average size is about 43 kdwt. In other words focus has changed dramatically. One must assume that in the future, as in the past, it is the oldest vessels that are scrapped. If we, for the sake of argument, assume that the market will decline substantially by 2010 and scrapping picks up substantially, we could see a radical change in the composition of the fleet.

Today, measured by deadweight, Capesizes constitute about one third of the fleet. Panamaxes about 28%, and the balance (39%) is in the 10-60 kdwt bracket. If all ships built before 1988 are removed in this period the shares will change to: Capesize 44%, Panamax 26%, and 10-60 kdwt 30%. The most dramatic change is for the smallest and largest vessels. Now, all of this is hypothetical and there is plenty of room for several interpretations and arguments for different scenarios, and the changes could very well take a longer time. In addition, if we make the mesh a little finer, we can even see that the current 50/50 division between Handysize and Handymax/Supramax in the 10-60 kdwt bracket may change to a 30/70 split. The oldest part of the fleet consists of small vessels and the order book is dominated by large vessels. The point is that the future will bring about structural changes in fleet composition that will, in our view, bring about changes in the marketplace.

Could we see a de-coupling between sizes with respect to earnings? Historically, earnings in the various sizes correlate quite well and no size segment lives its own life for long before demand "migrates " between sizes and imbalances are leveled out. This is probably more evident in the tanker market, but observed in the dry bulk market as well. Could we, for instance, see in the future poor Capesize earnings whilst Handysize earnings are acceptable, or even good? This will, of course, also impact asset values as well as activity levels and focus in the newbuilding market.

De-coupling will, nevertheless, probably be slow to develop at all and it will be interesting to observe if it comes to pass or not.