COVID-19 and commodity-related trends are likely to depress medium-term demand, but companies that can leverage deep market insights will have the opportunity to outperform in the postcrisis economy.
Bulk shipping has been attenuated for the past decade, despite some short-lived rebounds. In the medium term, the impact of COVID-19 and commodity trends is likely to continue to depress demand, dampen rates, and pose a number of other logistical challenges to the bulk and tanker shipping sector.Even in this challenging environment, however, we see potential opportunities to outperform. Data is more accessible than ever, which means companies can access deep market insights around economic and commodity trends, shipping analytics, and customer information. Industry players that invest in analytics can use data-led insights to seize opportunities in four main areas: finding attractive subsectors and niches, optimizing vessel portfolios, improving commercial choices, and operating existing vehicles more effectively.
The bulk and tanker shipping industry has historically been characterized by more instinctive decision making (based on judgment and experience), so this will require a step change in analytics capability. The investment will be significant, but those companies that fully leverage the new data sources and cutting-edge analytics techniques will be well positioned and resilient in the postcrisis world.
Bulk and tanker shipping slowed due to COVID-19, a challenging economic environment likely to persist in the next normal
Declining demand has led to sluggish growth in bulk and tanker shipping during the past decade. COVID-19 has compounded many of these issues; the slowdown in global economic growth has further decelerated demand for key bulk commodities, leading to a sustained oversupply of shipping capacity. The bulk shipping market grew at a CAGR of just 1.3 percent between 2015 and 2020, for example, and growth rates are expected to hover at around 0.8 percent per annum until 2030, with the fall in growth driven largely by declining Chinese demand for coal and iron ore.1
Despite slowing demand, the supply capacity of the dry bulk shipping market is expected to continue to increase. Shipbuilding is expected to add 3 to 4 percent to active capacity annually in the next ten years, while decommissioning will remove around 1 to 2 percent. The comparatively low rate of ship scrapping is due both to the relatively young age of the global dry bulk fleet (average ship age is 10.2 years2 ) and to the low price of scrap. Overall, therefore, supply will increase at a CAGR of 1 to 3 percent.
This mismatch between weak demand and growing supply could depress rates over the coming years (Exhibit 1). Rates for dry bulk shipping experienced a surge before the 2008 financial crisis because of the strong demand for many commodities (including iron ore, coal, and grains), but have remained low since, and are not expected to rebound in the coming years.
The tanker shipping sector also faces significant challenges. COVID-19 and a number of recent geopolitical challenges have had a significant impact for major commodities such as crude oil (Exhibit 2). Shipping demand has contracted sharply and—despite a slight short-term rebound—is expected to remain at a low level in the medium term, and then decline further after 2032 as a result of the energy transition. Tanker shipping capacity is likely to grow steadily, driven by a large number of outstanding orders. Again, this low demand growth and steady supply growth will likely lead to a sustained oversupply of tanker shipping capacity in the next five years.
Uncertainty around environmental regulation may negate some of the projected excess shipping capacity. There is still a lack of clarity around several environmental questions, including the level of greenhouse-gas reduction targets and the right fuel choice for the future. Ongoing uncertainty might dampen shipbuilding orders by the mid-2020s. This would go some way toward matching industry supply and demand.