Improved vessel efficiency and slowing demand growth are expected to continue driving down dry bulk earnings until 2024, when the new emission rules have greater impact. Pandemic-induced congestion is the “key factor” that has supported rates in the latest round of market boom, according to analysis by Maritime Strategies International director Will Fray, who leads the consultancy’s dry bulker research. It shows that while cargo volume fell nearly 2% in early 2020, the actual demand for ships in dwt terms increased by almost 3%. And the differential broadened further last year. The calculation takes account of the speed of vessels, the time they spend in ports, their ballast patterns and other fleet inefficiencies. “This represents a major downside risk for the market where there’s congestion unwinding. We’re starting to see that unwinding now,” Mr. Fray told a webinar.

The gap between cargo volume and vessel demand is predicted to reverse in 2023, when the former is to grow 2.5% and the latter to contract nearly 2% as congestion continues to ease, according to his estimates. Some analysts have pointed to the upcoming emission regulations, the Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII), which are expected to slow down the fleet, as reasons to be positive. But Mr Fray sees only limited impact, at least in the near term. Fitting power limiters on ships required to meet the EEXI requirements are estimated to slow them down by around 1.5%. “It’s a marginal positive,” he said. “It’s also far offset by this reduction in congestion.”

Meanwhile, the vessel supply picture still looks healthy, with an orderbook-to-fleet ratio at just 7%, well below the peak of 70% more than a decade ago. And new orders are unlikely to surge anytime soon, with tight yard slots and uncertainty over future fuels. “That said, there are still ships on order to be delivered at a time when MSI expects demand to actually fall,” said Mr. Fray. He expects the dry bulker fleet employment rate, which has been high since last year, to fall sharply in 2023. A recovery is foreseen from 2025 with tightening CII requirements and ageing tonnage leading to more scrapping. Prospects for the freight markets, therefore, look bearish, and the smaller vessels, which have benefited more from the bottlenecks, are likely to take a bigger hit. “This unwinding of congestion and the return of containerized cargoes back to the containerships means that there’s a sharper fall over the next two years for the smaller sectors,” he said.