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Maritime Conference: Notes on the Shipping Cycles

Companies and Markets

By Tom Abrams, CFA  |  March 29, 2023

For insights on supply chains, maritime subsegment fundamentals, and new upcoming emissions standards, we attended the Capital Link International Shipping Forum on March 20. This article highlights the industry discussions on shipping cycles for the various subsectors: crude tankers, dry bulk, and containerships. To view our conference summary of the emissions and decarbonization discussions, click here.  

Crude Tankers

The crude tanker market has been healthy for a few years, and the speakers believe it could persist for a few more years, given few industry orders for new vessels. Specifically, for example, there are no new VLCCs (very large crude carriers) slated for delivery in 2024, and only one in 2025.

Volume is good overall, and ton miles—where crude is moved from and to—are solid. The industry will not be able to effectively “add” ship capacity by speeding up due to emissions limits. Inflation is supportive of existing ship pricing. And it was said that China could be a positive swing of one million barrels/day as pent-up demand on recovery from lockdowns impacts markets. Russian trade is a wildcard and will not recover until war’s end but that, too, could be an anticipated positive at some point. As a sign perhaps of rose glasses, even the threat of a small U.S. recession didn’t seem to phase the participants as more U.S. crude could then be expected to be exported.

The uncertainty of how customers will react to new emissions rules rolling out 2023 - 2025 is impacting the desire to place new orders for vessels—as is the question of whether customers will contract vessels with lower emissions scores. Eventually, some capacity could be scrapped as an additional positive for a longer cycle.

One headwind for demand mentioned was the view that U.S. shale can’t (or won’t) grow like it used to.

Any relatively tight shipping market will loosen when chartering customers offer longer-term contracts that underpin enough years for a commitment to a new-build vessel. Prices at that point will likely have to be higher for the operators, however, with more than a few years contractable. As such, the speakers generally expected pricing 5% - 10% higher by the end of 2023, positioning the industry two to five years ahead of solid financial results with cash flows generally supporting shareholders.  

Dry Bulk

Dry-bulk operators generally are looking forward to a solid market over the next couple of years. However, investors who spoke at the conference still seem more mixed on the cycle. Bullish comments centered around order books at only 7% of the global dry bulk fleet through 2026, the lowest level since the late ‘80s. With assumed retirements of older vessels, this would suggest only 1% - 2% net fleet growth. In addition, shipyard slots are unavailable for new dry bulk ships until late 2026. Instead, shipyards are focused on more profitable LNG and container ships. Slower steaming to reduce fuel use and meet emissions limits could reduce fleet growth toward zero.

Big dry bulk items include iron ore, coal, and grain. China, at 35% - 40% of dry bulk demand, is a wildcard for market activity, with some seeing a pickup in iron ore demand because of higher Chinese steel production and low inventories. Demand for Chinese consumer goods was also said to be seeing some improvement after lockdowns.

Forecasts of 86% - 87% dry bulk capacity utilization suggest low but profitable day rates. With average fleet age around 11 years—among the older ages we have seen historically with some sub-categories of carrier sizes much older than that—the market could improve if ships with unattractive emissions profiles are no longer used by customers reviewing their supply chain emissions. As operators await better market conditions, companies in the sector indicated that instead of new capacity, they are using cash flow to pay down debt and retain strong dividend payouts—particularly when prices are close to or below asset values.


When Covid hit, there was difficulty staffing ports and container ships. As a result, capacity was effectively withdrawn from the market, leading to 400% - 500% price increases. Given container vessels could be contracted or “fixed” for three to five years at very attractive rates, operating carriers generated a lot of cash flow in that period. As containership supply has reentered the market, supply chains are returning to normal, leaving medium-term contracts less available and prices lower.

Have container shipping rates reached bottom? Some say rates are beginning to trough slightly above 2018 - 2019 levels, though speakers generally suggested that it will take at least six more months for rates to fully define a bottom. Attractive contract terms are available on a six-month basis, but longer-term fixes are not.

One variable in the outlook is the order book for new containerships. With some assumed annual scrappage rates, a forecast of net capacity increase of 5% - 6% over the next three years provides a good backdrop. In as much as the order book is focused on adding larger vessels, the outlook is slightly more negative for that ship size category.

How fast existing and new capacity is absorbed will define the cycle over the next few years. Big variables noted at the conference were the global economy and, in particular, China, new regulations, and the war in Ukraine. New regulations could limit the demand for older vessels at any price. And an end to the war would be expected to boost activity. Widespread on-shoring—moving manufacturing back to the home market—would have an impact on the need for containers, but relative labor costs are a hurdle. Instead, trends in so-called friend-shoring—for example, moving from China to other areas in southeast Asia—will take time to unfold but could support the smaller “feeder” containerships.

Capital allocation remained a big theme for most corporate attendees who spoke at the conference. They have used large cash flows to reduce debt (toward zero net debt goals), pay dividends, and retire stock. The ability to buy existing ships accretively has been difficult because of the uncertainty over the next year or so, though some of the ship brokers in attendance suggested there’s more activity starting to percolate.

Notably, drivers include a potential end to the war in Ukraine (specifically seen in the Middle East and for Russian goods) and replacing much older ships that, at some point, will not be economically viable because of high emissions. New ships can be 30% more fuel efficient than a retired older ship. That said, making a $115 million+ commitment on a new ship is still a significant decision not taken lightly.

In Summary

Subsector views of the shipping types were varied. The crude tanker market has been and remains the strongest market, with solid rates and almost no industry orders for new ships.

There was some debate about the dry bulk market. Given it may be troughing after coming off a Covid-driven peak, very few unanticipated ships can enter the market until late 2026, and demand has some positive wild cards in China, Russian trade, and the global economy.

Lastly, the container market is seen as solid but less interesting, with some capacity anticipated. That said, container companies are generally in great financial shape and have staying power should there be any further weakness in that market.

Overall, investors are focused on capital allocation—which often translates into not investing in new capacity until returns are good. Although this time around, renewing a fleet (not adding to it) to prepare for new regulations seems acceptable.


This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

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Tom Abrams, CFA

Associate Director, Deep Sector Content

Mr. Tom Abrams is the Associate Director for deep sector content at FactSet. In this role, he is responsible for integrating additional energy data onto the FactSet workstation, including drilling, production, cost, regulatory, and price information. Prior, he spent over 30 years working at sell- and buy-side firms, most recently as the sell-side midstream analyst at Morgan Stanley. He also held positions at Columbia Management, Dreyfus, Credit Suisse First Boston, Oppenheimer, and Lord Abbett. Mr. Abrams earned an MBA from the Cornell Graduate School of Business and holds a BA in economics from Hamilton College. He is a CFA charterholder and holds certificates in ESG investing, sustainable investments, and real estate analysis. 


The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.