Shipping is the pillar of global trade and remains the most efficient mode of transportation for mass bulk commodities

Shipping continues to be the most cost-effective means of transporting essential commodities and accounts for 90% of all international trade by volume.

Modest supply growth

Following several years of limited contracting and newbuilding activity, supply growth in the geared dry bulk fleet is expected to be modest by historical standards. With shipyards operating near capacity and a heavily backdated orderbook, an uptick in orders is unlikely to disrupt this trend over the medium term as shipyards continue to prioritise orders from other, higher margin, shipping sectors such as gas carriers, tankers and containers.

Demand is resilient and diversified

The primary cargoes of Handysize and Surpra/Ultramax vessels are dry bulk goods typically carried in smaller volumes such as metal ores and concentrates, bauxite and alumina, petcoke and other minerals, agricultural products such as grains, fertiliser and sugar, and construction materials such as logs and forest products, cement, steel products and scrap. Collectively known as ‘Minor Bulks’, the demand for these goods are largely driven by GDP and population growth while the broad mix of cargoes provides diversification.

Geared dry bulk vessels are versatile

Handysize vessels are relatively small in dimension and carrying capacity amongst dry bulk vessels (a typical Handysize vessel ranges from 28,000 to 42,000 dead-weight tonnes) while Supra/Ultramax vessels are slightly larger (from 42,000 to 70,000 dead-weight tonnes). They are the only ‘Geared’ segments of the global dry bulk fleet meaning that they have on-board cranes to self-load and discharge, which is particularly attractive where shoreside infrastructure is not as developed. Due to these features and their shallower draughts, Handysize and Supra/Ultramax vessels are able to access a far greater number of ports around the world than larger ships.

The characteristics of flexibility, versatility and port accessibility, coupled with resilient underlying demand that is typically less dependent on discretionary spending, result in a natural diversification of risk, barrier to entry and downside protection for the Handysize and Supra/Ultramax segments.

Supply growth at near historically low levels

New ordering for geared dry bulk vessels is near 20 year lows with an uptick in orders unlikely with shipyards near capacity with orders for other vessel types until the end of 2025 and beyond, low margins for small ships, lack of financing, increase in newbuild price quotes, and lack of future-proofed designs. We believe that the industry-wide focus on environmental concerns has also led to a pull-back in capital investment in newbuild vessels.

Regulatory pressure to further constrain supply

The marine transportation industry is in the early developmental stages of future propulsion systems (which may include a variery of fuels) with uncertainty over which future ship designs to best satisfy carbon emission standards. Given the long expected operating life of a vessel, we believe that regulatory change and technological uncertainty may continue to constrain newbuild orders until there is a technological breakthrough which is widely applicable and commerical viable for the geared dry bulk segment.

Meanwhile, increasingly stringent emissions regulations are expected to place increasing pressure for older, less efficient tonnage to be recycled, particularly for the geared dry bulk segment where a signigicant portion of the fleet is approaching scrapping age, while also enhancing the value of efficient and less carbon intensive vessels.

Beyond physical fleet growth, tightening environmental regulations are having a clear impact on effective supply with operators responding with slower vessel speeds, to reduce emissions, while owners are taking more time to retrofit vessels with energy saving devices (ESDs) to improve vessel performance. Both response types ultimately reduce the amount of tonnage available for charter at any one time and increase fleet utilisation.