The Dry Bulk shipping industry

An introduction

Dry bulk shipping refers to the movement of those commodities which are in form as

full loads or homogeneous cargo on board bulk vessels, in difference from that cargo

which is transported as parcel or liner cargo, or in small, bagged consignments.

As Stopford (2007) states a bulk cargo can be defined as: “any cargo that is

transported by sea in large consignments in order to reduce the unit cost”. Of course,

since we are talking about dry bulk we have to exclude all liquid cargoes such as oil

from the above definition.

1) The major dry bulks

There are five (5) major dry bulks which constitute the “building blocks”, as Stopford

(2007) says, of the modern industrial society. These are namely: coal, iron ore,

bauxite/alumina, grain and phosphate rock. The following figure shows the

contribution of the five major bulks in the world seaborne trade:

Figure 1: International Seaborne Trade (millions of tons loaded)

Source: Review of Maritime Transport, UNCTAD

A greater analysis of the five major bulks will be performed later in this essay. At this

point, we will present the means by which these goods are transported.

Sea transportation of bulk cargoes is performed via specialized ships called “bulk

carriers” or “bulkers”. Bulk carriers were developed in the 1950’s to carry large

quantities of non-packed commodities (like grain) in order to reduce transportation

costs (Alderton, 1994). Today bulk carriers represent one-third of the world fleet in

tonnage terms.
Bulk Carrier sizes and Classes
Depending on the deadweight tonnage and hull dimensions, bulk carriers can be
divided into the following main groups or classes:
 Small : Vessels with less than 10,000 dwt
 Handysize : This term describes vessels within the range of 10,000-35,000 dwt
 Handymax: Vessels in the range 35,000-50,000 dwt.
 Panamax: The term Panamax describes vessels in the range 50,000-80,000 dwt
and maximum beam 32,1 m, able to navigate through Panama Canal.
 Capesize: This term describes bulk carriers in the range of 80,000-180,000
dwt that is to large for the Panama Canal or the Suez Canal and have to
navigate via the Cape of Good Hope and Cape Horn.
 Very Large Bulk Carriers (VLBC’s): Vessels larger than 200,000 dwt
Besides the described main classes of bulk carriers, several sub-classes are existent to
describe specialized ships. For example, the term Kamsarmax refers to a new type of
ship, larger than Panamax, that is suitable for berthing at the Port of Kamsar which is
restricted to vessels no more than 229 m. Other sub-classes include Dunkirkmax,
Newkastlemax and Setouchmax.
The following figure shows the distribution of bulk carrier classes:

Distribution of Classes

35% 32%
30%
24%
25%
Number of Ships (%)

20% 17% 17%

15%
9%
10%
5% 1%
0%
Small Handysize Handymax Panamax Capesize VLBC
Classes

Source: MAN B&W, Propulsion trends in Bulk Carriers

The Major Bulks analyzed

1.1 Iron Ore: This is rocks and minerals from which metallic iron can be

economically extracted. Consumption of iron ore is determined from the world steel

production and its annual change (Wilkens, 2004). Iron ore trade is affected from the

location of the steel producers, their domestic or regional capacity to fulfill material

requirements and the distance to the source of iron ore (Wilkens, 2004).

In order to identify demand for iron ore, we first have to identify which are the largest

consumers of this commodity. The following table (Table 1) shows the ten (10)

largest steel producing countries as of January 2010:

TABLE 1: LARGEST STEEL PRODUCING COUNTRIES (million met. Tons)

Source: World Steel Association

Steel production declined in nearly all the major steel producing countries and regions

including the EU, North America, South America in 2009. However, Asia, in

particular China and India, and the Middle East showed positive growth in 2009. The

following figure (Figure 1) shows the annual growth trend of crude steel production.
 Source: World Steel Association

From the above data we can conclude that China is by far the greatest consumer of
iron ore, therefore every demand analysis for this particular commodity has to
concentrate mainly upon this country. According to UNCTAD report (2009), China
accounts for two-thirds of total iron ore imports. Moreover, steel production in China
is the only one to present a steady growth from 2001 until nowadays. In order to
discuss supply of iron ore we will have to identify the major exporters of this
commodity. Among the largest iron ore producing nations are Russia, Brazil,
Australia, China and USA. The following figure (Figure 2) shows the greatest iron ore
exporters market share percentage:

Figure 2: Largest Iron Ore Exporters, 2009

3% Source: UNCTAD, Review of Maritime Transport 2010
2%
5%
Australia
8% India
40% Brazil
Other
South Africa
29% Sweden
Canada
13%
Although the world production of iron ore fell by 6, 2% in 2009 to 1, 6 billion tons,
seaborne iron ore trade is estimated to have increased by 11% according to UNCTAD.
This seemingly contradiction is a result of higher demand in China combined with a
fall in its domestic production.

1.2 Coal: A readily combustible black or brownish-black rock which is composed

primarily of carbon together with other elements, like sulphur. It is an extremely
important fuel as it is the largest single source of electricity world-wide, and a vital
component in the extraction of iron. Seaborne trade of coal is more complex than iron
ore. The reason for that lies in the fact that coal imports have two different markets; as
a raw material for steel making and second as a fuel for the power generating industry
(Stopford, 2007). The ships that are mainly employed for the seaborne transportation
of coal are Handysize, Panamax and Capesize vessels (Alderton, 1994).

According to the 2010 UNCTAD report, during 2009 the volume of coal shipments
(thermal and coking) totalled 805 million tons, almost the same volume with 2008.
The following figure shows the major coal importers and exporters:

TOP COAL EXPORTERS (2009)

Total of which Steam Coking
Australia 259 Mt 134 Mt 125 Mt
Indonesia 230 Mt 200 Mt 30 Mt
Russia 116 Mt 105 Mt 11 Mt
Colombia 69 Mt 69 Mt -
South Africa 67 Mt 66 Mt 1 Mt
USA 53 Mt 20 Mt 33 Mt
Canada 28 Mt 7 Mt 21 Mt
TOTAL COAL IMPORTERS (2009)
Total of which Steam Coking
Japan 165 Mt 113 Mt 52 Mt
China 137 Mt 102 Mt 35 Mt
S. Korea 103 Mt 82 Mt 21 Mt
India 67 Mt 44 Mt 23 Mt
Taipei 60 Mt 57 Mt 3 Mt
Germany 38 Mt 32 Mt 6 Mt
UK 38 Mt 33 Mt 5 Mt
Source: IEA 2010

According to the World Coal Association (WCA), over the last twenty years seaborne
trade of steam coal has increased on average by about 7% each year, while seaborne
coking coal trade has increased by 1.6% per annum (WCA, 2010).
International trade in steam coal is divided in two regional categories:
 The Atlantic market, made up of importing countries in Western Europe,
notably the UK, Germany and Spain.
  The Pacific market, which consists of developing and OECD Asian importers,
notably Japan, Korea and Chinese Taipei. The Pacific market currently
accounts for about 57% of world seaborne steam coal trade.
 International coking coal trade is limited compared to the trade of thermal
coal. The major destination for both types of coal is Europe and Japan.
However, over recent years coal exports are increasingly focused on Asia. A
very important factor that enhanced that fact was the decision of the Chinese
Government to shut down many of its domestic mines which led in an
impressive surge of coal imports in this country (UCTAD, 2010). This led
thermal coal imports to almost quadruple, while coking coal imports increase
about ten times. Another reason for increased exports to Asia is due to this
region increased domestic energy requirements.

1.3 Grain: The volume of international grain trade (including trade of wheat, maize,
rice, barleys, oats, rye, sorghum, soybeans, etc.) depends on population levels,
economic development, purchasing activity, import requirements, possible failure of
corps or increased production. Only 15-20 % of grain global production enters into
seaborne trade.

The following picture shows the world grain exporters and importers according to
statistical data from the US department of agriculture for 2009-2010:

Source: Rian.ru, available at www.rian.ru

1.4 Bauxite/Alumina: Alumina (semi-processed smelter intermediate product) and

bauxite are the primary components for the aluminium industry. As Stopford (2007)

states, “It takes about 5.4 tons of bauxite to produce 2 tons of alumina, from which 1

ton of aluminium can be smelted”. Bauxite is mainly exported by Africa (28.7%),

Australia (12.2%), the Americas (25.6%) and Asia (32.7%), and similarly Australia

and Jamaica for alumina (UNICTAD, 2009).

The volume of international bauxite/alumina trade is straight dependable to the

industrial production demand; especially the major importers’ demand (Europe, North

America and Japan). According to the 2010 UNCTAD report, bauxite and alumina

world trade faced a 23.2 per cent decrease translated in 66.0 million tons, directly

affected by the crisis.

Additionally according to Stopford (2007), Panamax size or larger sized vessel

types are employed for carrying aluminium products. In contradiction to aluminium

products, alumina trade requires smaller sized vessel types than Panamax since

alumina as raw material has a high value and has to be stored under cover.

1.5 Phosphate rock: Phosphate rock is used as one of the three primary plant

nutrients, and is also a component of fertilizers. It used to be the 5th major bulk in

1970s and 1980s. Due to industry’s self-orientation, in our days, most phosphate

producers process the rock output at source and export it as manufactured fertilizer or

as an intermediate product. Also, major import based rock processing plants in Europe

closed.
 Phosphate rock is largely exported by Morocco (accounting 1/3 of world

exports), followed by other African countries, such as Togo, and Middle East (Jordan)

contributing another third of worldwide trades (UNICTAD, 2009). On the other hand,

Stopford (2007) insists that main exporters of phosphate rock are also US and USSR.

Since phosphate rock is mainly used for the compound of fertilizers, the

falling demand owed to the reduced grain production in its major importer, which is

the United States, has caused an excessive reduction of the volume which is being

traded, accounting a 38.7%. The last year’s dramatic drop of phosphate rock is

expected to be overcome in 2010, due to the growth of operations in Brazil, China,

Egypt, Finland, Morocco, the Russian Federation and Tunisia, meaning increase of

supply and demand in subject trade (UNICTAD, 2010).

As Stopford (2007) states, “Since the average size of plant is comparatively

small and often located in rural areas, the convenient size of cargo parcel is small with

little incentive to use very large bulk carriers except on major routes such as the North

Atlantic.”