Monday, November 24, 2008

Over optimism on a quick reversal of the dry bulk market downturn

Whilst it is true that there are numerous cancellations in the pipeline, the impact depends on the size range of the tonnage. In the end, however, the markets will not return to health until greater demand for cargo carried.

The easiest size range for optimism are the smaller units ordered in the 'Greenfields' yards. The yards themselves may never be in a position to execute the orders. The larger sizes are being built in stronger, larger yards.

Cancellations mean losing deposit money. In some cases, companies will make forfeits; in other cases, they will prefer renegations pushing out delivery dates and perhaps substituting for other type tonnage.Scrapping prospects are also uneven. The prospects are brighter for smaller size tonnage because of the higher age profile.

The bargaining positions are now reversed in supply-chain management where it is a buyers' market. The buyers can pick and choose their suppliers and negotiate freight costs. The decline of export markets seems to be affecting the Far East more than originally anticipated. Domectic demand is not soaking up excess production.

I believe in a cautious approach ahead.

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