Off the coast of a nearly deserted island below the southern tip of Hong Kong, at least 10 massive ships that normally carry hundreds of thousands of tons of coal or iron ore lie idle near one of the world's busiest sea routes.
These empty vessels paint a grim picture for the dry bulk shipping business that veterans of the industry say is grappling with an unprecedented crisis of too many ships and not enough cargoes. The hollow boats underscore the global economic doldrums that policymakers are struggling to overcome, Reuters reported.
"This is the worst we have seen in recent times. We have been hit by a perfect storm–huge order books, China slowdown, the end of quantitative easing, lurking European monetary crisis, glut in oil and commodity prices," said Kaushik Neogy, a commercial manager at Wallem Commercial Services in Hong Kong.
Shipping is a cyclical business that is often at the mercy of the ebbs and flows of the global economy. However, the dry bulk sector has been dashed upon the rocks of vessel oversupply and slowing economic growth.
The industry has suffered from large capital inflows from private equity players who invested in ships in a bet on sustained demand from emerging markets, particularly China. Instead, the world's second-largest economy is growing at its slowest pace in 25 years, reducing the need for the coal and iron ore that fuels its manufacturing sector.
The Baltic Exchange's main sea freight index, which tracks rates for ships carrying dry bulk commodities, has lost about 98% of its value from a peak of 11,793 points in May 2008, marking the lowest level since records began in 1985.
At the height of the market, dry bulk vessels could command daily fees of about $185,000 but that has dropped to about $4,000 to $6,000 a day now.
With operating costs for dry bulk ships at about $5,500 to $7,500 per day, depending on the size of the vessel, the global commodities meltdown has made it hard for many operators to cover costs.
China Imports Dropping
Vessel rates are unlikely to recover soon especially as China's voracious appetite for coal and iron ore slows.
Coal imports to China may drop 8% this year to 152.1 million tons, according to a forecast from shipping services firm Clarkson. Shipments of coal, both for power generation and steel making, have plunged since 2013 when they reached 264.9 million tons.
China's monthly iron ore imports peaked at a record 96.27 million tons last December but then dropped 14.6% to 82.19 million tons in January this year, data from the General Administration of Customs showed.
The decline suggests annual imports may have peaked in 2015 at 952 million tons as production at China's steel mills has slowed. In contrast, India imported just 15 million tons in 2015.
Wah Kwong's Huxley believes the industry is losing up to $20 billion a year in operating costs. The losses are pushing smaller companies such as Oslo-headquartered Western Bulk to sell parts of their business while others take the merger route to create giants to grab market share.
