The bulker earnings peak has already passed this year and worse is to come for owners, a leading analyst believes. S&P Global Market Intelligence is forecasting a drop in the Baltic Dry Index (BDI) of between 20% and 30% going into 2023, before markets begin to recover. TradeWinds reported that the BDI had dipped below 1,000 points at the end of August, as demand drops away. Daejin Lee, S&P’s lead shipping analyst, believes bulkers face a volatile path.

Rates in the sector, as well as container ship freight rates, have continued to fall over the past three months. “Due to the seasonality of the market, dry bulk freight rates would typically peak in the third quarter,” S&P said. But it views the second quarter as probably being the peak of 2022. S&P’s rate models predict that the BDI will average 1,300 to 1,400 points in 2023. It will then recover to average between 1,400 and 1,500 points in 2024.

Lee pinpointed much-reduced port congestion levels, along with weaker cargo arrivals, as big reasons behind a significant decrease in freight rates. Based on an expectation of weaker trade volumes, “we do not expect extremely high congestion again in the coming quarters”, he added.

The Carbon Intensity Indicator (CII), one of the IMO’s new decarbonization regulations scheduled to be implemented in 2023, will result in higher demurrage costs to reduce idling time, the analyst predicted. And he argues that significant drops in rates will discourage potential sailing speed increases. In the medium and long term, the engine power limitation impact of the Energy Efficiency Existing Ship Index will be limited on commercial speed, according to S&P. But CII will start to hit speed from 2024 onwards, as well as boosting scrapping sales.

Earlier-than-expected changes in China’s zero-Covid policy and a ceasefire in Ukraine remain potential boosts for bulkers, the company believes. But S&P sees strong domestic coal production in China and fast-declining container demand along with global recession fears remain serious downside risks in the medium and long term. Lee said: “Although we expect some seasonal improvements in the dry bulk market in coming months, a volatile path to lower rates is expected in the near term due to slower-than-expected economic growth with continued weakness in mainland China’s real estate sector as well as the absence of high congestion. Eventually, overall dry bulk freight rates may return to the level we have seen in the pre-pandemic period in coming months.”

Limited growth in ship supply driven by the new IMO regulations and lack of newbuilding orders will help the market recover in the second half of 2023 and 2024, he believes. Container freight rates have declined significantly in the third quarter with slower growth in container trade demand in response to the high inflation rate, Lee said. After the third-quarter peak trade season is over, a trend to “de-containerize” cargoes is expected to reverse. Some minor bulk cargo demand will gradually return to containers, “which would put backhaul-geared dry bulk freight rates under further pressure”, he cautioned.