Considering Congestion

Another matter is that the shipping industry doesn´t really know what the normal is. In other words; what was it like before the autumn 2003? What was it like in the 1990s? The problem with congestion, and measuring congestion and it´s impact on supply of transportation capacity, is that we really don´t have historical records of how this was in "the old days". Hence, we do not have a proper yardstick for measurement. Newcastle (NSW) which is the port most frequently referred to - and which has, and has had, big problems - started publishing queue and waiting time information in 2005. A long range of other ports, frequently experiencing congestion, also lack historical information. Thus, we really don´t know what the "normal" situation is. Anecdotal evidence indicate congestion problems during the 1990s (and long before then), but the situation today is significantly different. The current dry bulk fleet is close to fully utilised. Under such circumstances even a small change in supply or demand have a substantial impact on freight. This was not the case, say, ten years ago.

In the latest statistics, the Newcastle Port Corporation announces that 50 vessels are waiting to berth and that 19 vessels arrived last week. The average waiting time for the ships that arrived last week is 16.5 days. Two months ago, the waiting time for the latest arrivals was 32 days and 69 vessels were waiting to berth. It is important to note, that the "average waiting time" refers to the latest arrivals. Hence, in order to estimate the number of lost transportation capacity due to congestion, the number of arrivals and their average waiting time has been analysed. According to our analysis (and estimate for the last two weeks of September), a total of about 11,000 ship-days were lost during the first 9 months this year. This is about 3.5 times more than during the same period last year (3,100 ship-days). The increase in lost ship-days is equivalent to about 22 ship-years. Assuming that 4q07 will be on par with 3q, the total loss this year will be about 14,700 ship-days against a loss in 2006 of 5,400 days. In other words, the increase was 9,300 ship-days, or 26 ship-years. Based on the average size of bulkers calling Newcastle, about 100,000 dwt, one could say that about 2.6 mdwt transportation capacity has been lost. This represents 0.7% of the dry bulk fleet.

Based on a survey of 21 other iron ore and coal loading terminals we observe that as of mid-september delays were observed in 14 of them and only one port announced delays exceeding 5 days (Dalrymple Bay, 21 days delay).

There were more delays in the 2nd quarter this year and waiting time and queues have generally declined substantially during the third quarter. As a result we believe that the extent of congestion in world ports is highly exaggerated. Information about congestion in discharging ports is even scarcer than for loading ports. For the time being congestion is not considered to be a problem in discharging ports.

As a result, we would claim that time-adjusted congestion is highly exaggerated and that the real share of global transportation capacity this year will amount to something in region of 2%. The strengthening of market condistions during 2Q07 combined with reduced waiting time should be good news as this indicates that the underlying demand growth for bulk carriers is extremely strong.