Limited ordering of new handysize bulkers is expected to bode well for future earnings potential and asset values. “With the orderbook remaining at multi-decade lows for the handysize segment and net fleet supply forecast set to decrease next year even with steady minor bulk demand growth, we consider there is a supply shortfall of ships. There is also further upside in secondhand asset values as 10-year-old benchmarks are below depreciated replacement cost,” said London-listed owner Taylor Maritime Investments. “Given the underlying fundamentals of the handysize segment, particularly tight fleet supply, the company believes the 2022 outlook is positive.” Older, less-efficient tonnage may also be ideal candidates for scrapping, shrinking supply even further, while minor bulks demand growth hovers around the 2% mark.

Indeed, the orderbook to trading fleet ratio in dwt terms is at 3.3%, the lowest of all the bulker segments, bar very large ore carriers, which are at 0.8%, according to data from Banchero Costa. Fleet growth of 2% in 2021 is expected to drop to 1% this year, followed by a 1% contraction in 2023 and negative growth of 3% in 2024, its data showed. With 2,825 ships on the water, handysizes make up 23% of the overall dry bulk fleet, according to Lloyd’s List Intelligence data. About 15%, or 433 units, were built in 2000 or before, while 44% are less than 10 years old. There are 100 vessels in the orderbook, with four scheduled for delivery in 2024.

Taylor Maritime Investments’ chief executive Ed Buttery said there were three main reasons for the lack of newbuilding ordering: a reluctance by investors to fund this particular asset class, uncertainty over future fuels regulations and a lack of shipyard capacity. “Handysizes are slipping under the radar,” he told Lloyd’s List. Private equity is cautious about handysize newbuildings as they will not deliver until the second half of 2024 or early 2025, which means there is a wait for returns, so it is better to buy secondhand ships, he said, which can trade instantaneously, capturing the healthy spot rates. In addition, ships being built are not state-of-the-art electric or hybrid, and until that happens, no money will flow to this segment, he said, adding that shipyards are not that keen on handysizes as they are not that profitable for the yards compared with containerships or liquefied natural gas carriers. Newbuilding price inflation must also be considered.

The sentiment was echoed by Thailand owner Precious Shipping chief executive Khalid Hashim, who also highlighted the smaller the ship, the greater risk of falling foul of the new efficiency regulations which come into force on January 1, 2023. Dry bulk owners have been erring on the side of caution when it comes to newbuildings given the massive over-ordering that took place in 2007-08, which left the market “in a mess” until 2020, he said. In addition, active shipyards fell to just 89 in 2020 from 231 a decade earlier which means available capacity has shrunk and dry bulk owners have been “crowded out” unwilling to bid higher to ensure slots. Handysizes are also “not the flavor of the month” given the inconsequential difference in price with ultramaxes, which have greater carrying capacity.

Meanwhile, Bancosta head of research Ralph Leszczynski said the lack of ordering in the smallest size stems from a “general upsizing” trend as port infrastructure improves. “Draft limitations and other restrictions are being gradually reduced in many ports, and therefore there is increasingly less need to specifically use small vessels. At the same time, economies of scale tend to favor the use of larger vessels. That is why the focus over the past decade has been much more on supramaxes and ultramaxes than on 20,000 dwt handies.”

Smaller-sized vessels tend to be not particularly attractive for both investors and shipyards from an economic point of view compared to larger vessels, he said, adding that generally only owners with significant experience and know-how of the business manage to maximize profits from smaller tonnage.