Ocean transportation connectivity, the extremely high demand for one type of ship may affect the supply and demand fundamentals of different types of ship. Recently, the spillover effects of strong container demand are bolstering the fundamentals of dry bulk shipping, pushing spot rates to their highest levels since the 20th century.

Transfer effect between ship types

Market effects are transmitted from one shipping sector to another in three main ways:

One is that ships have changed the type of cargo they carry, such as coated tankers that can carry both refined and crude oil.

Second, cargo has changed ship types. For example, some grain shippers have switched to containers when dry bulk ship rents have risen.

Third, Asia's shipbuilding capacity is in short supply. The most extreme example was the 2003-2008 shipping supercycle, when demand for new container ships, bulk carriers, oil tankers and LNG carriers surged simultaneously as each type competed for capacity with the others, driving up the cost of new shipbuilding in each sector.

The second and third types of spillovers are already under way.

Container cargo began to shift to bulk carriers

John Wobensmith, chief executive of Genco Shipping & Trading, said dry bulk Shipping had its best start to the year in a decade.

Eagle Bulk CEO GaryVogel said recently that the 45,000 to 60,000 DWT Supramax has begun to benefit from the spillover effect of Bulk shipments. It recently shipped bags of goods such as cement from China to Guatemala, and bags of fertilizer to Peru and Chile. This route is usually the outbound route for container ships and the return route for dry bulk shipments.

The greater the return haul, the higher the capacity utilization of the round-trip route. I'm interested in everything that's going on in the container market right now because it has a profound impact on both our rates and our trading patterns.

Container ship orders squeeze new orders of other ship types

New orders for container ships and LNG carriers are squeezing the room for new orders for tankers, said HugoDeStoop, chief executive of oil tanker operator Eastern Euronav.

Dry bulk plates have also been affected. "Most yards are at full capacity, filled with containers, tankers and the like," said Loukas Bomparis, president of Safe Bulkers.

Vogel noted that dry bulk carrier hand-held orders are historically low, accounting for only 5.6 per cent of the existing fleet. New orders in the first quarter of 2021 were 33% below the quarterly average for 2020.

The cost of new ships has also risen. Currently, the Ultramaxes of 60,000-65,000 DWT for delivery in the second half of 2023 and beyond cost $27 million to $29 million.

Shipyard capacity was "shrinking rapidly" as orders for other shipping sectors accelerated. Record orders for large container ships in the past few months, combined with orders for other large vessels such as VLCCS, have quickly filled up shipyard capacity with these more attractive orders that take longer to build.