Shipping freight rates, which have hit record lows this year, are set to remain weak for the rest of the decade or longer as there are too many ships and because low fuel prices are capping operating costs, Goldman Sachs said.
The low freight rates would benefit large iron ore and coal producers as they can access new markets, while high cost producers would suffer from greater competition and a declining share of their regional markets, the U.S.-bank said in a note.
Steep drops in Asian shipping rates have also added to fears about slowing trade, as a fall in export orders from countries across the region depresses demand for ships.
Goldman said China’s economic transition from investment to consumption, together with a shift towards locally sourced cleaner energy had led to a sharp deceleration in dry bulk trade.
The daily charter rate for a capesize vessel has fallen from a peak over $100,000 in 2008 to below $10,000, while the average utilization rate of the dry bulk shipping fleet is set to decline from around 90 percent between 2008 and 2010 to 70 percent over 2015 to 2019, the bank said.
“Faced with the risk of leaving vessels idle over long periods, we believe that ship owners will continue to charge low charter rates. This compounds the impact of lower fuel prices, resulting in a period of cheap freight that should last until older vessels have been scrapped in sufficient numbers to balance the market,” Goldman said.
“We expect low freight rates to persist at least until the end of the decade,” it added.
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