It’s the biggest talking point in shipping history. What is it? It's the bulk carrier order book, of course. And like all really great conversation pieces, it brings together a subtle blend of money, tragedy and, at times, farce. All that is missing is sex, but maybe we shouldn't go there.

Mis-conception

The story started in the early 2000s when the dry bulk business was struggling. By April 2002 its orderbook had shrunk to a miserable 20.2m dwt, just 7.1% of the fleet, and one of the lowest levels on record. Owners were taking delivery of Panamaxes ordered at bargain prices in 1999, but with the one year timecharter rate down to $5,300/day by December 2001 it was a struggle. Nobody had the heart to repeat the gamble (though anyone who did would have made a killing). As a result the bulker market was propelled into the biggest boom in history with virtually nothing on the order book.

Birth Control Measures

Better still, scar tissue from the 2001 slump discouraged ordering. When bulker earnings took off in 2003/4, reaching $29,313/day for a Panamax in March 2005, investors sat tight (see graph). Although the order book crept up to 77m dwt, it was still only 23% of the fleet. Moderation compared to rapacious container investors who ordered up vessels amounting to 55% of the fleet.

By 2006, the one year rates had slumped to $10,000/day, making the restraint look like a sensible strategy.

Ordering Orgy

Unfortunately after five years of restraint, in 2007, bulker owners suddenly got the bug. As rates soared, from $10,000/day in 2006 to $61,250/day in April 2008, investors went ballistic. The orderbook reached 102m dwt in January 2007; 200m dwt in October 2007; and 300m dwt in November 2008 - perfectly timed to coincide with spot rates for a Capesize collapsing to $2,000/day.

Abort the Order Book, Cap'n?

This ordering orgy happened so late in the cycle that little has so far been delivered. Currently 272.2m dwt of the original 301.2m dwt peak order-book remains for delivery. Although rates have recovered a little, it is hard to believe that bringing this big bouncing baby into the world will help bulk carrier investors.

But aborting it would need the consent of the mother shipyards, which, for most part full, have legitimate marriage contracts and need someone to support them. Slippage is a short-term solution, but the really big deliveries are due this year. Will only half be delivered? Or maybe even less? And if they are not delivered, what happens to them?

Don't Leave It Too Long

So there you have it. Like many real life situations, ignoring the problem will not solve it. In fact it probably makes it worse, and it does seem as though in 2010 the industry must live with the consequences of those good times in 2007/8. Have a nice day.