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The Future of Dry Bulk Shipping in the Face of Energy Transition

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The global economy is in a state of flux, with various industries undergoing significant transformations. Among these, the dry bulk shipping industry stands out due to its critical role in global trade and its susceptibility to changes in other sectors. This article aims to provide an opinion on the future of this industry, particularly considering the ongoing energy transition.

The global GDP is projected to grow by 2.9% in 2024 and 3.1% in 2025, indicating a positive economic outlook. However, this growth is not evenly distributed across all sectors. The energy sector, for instance, is experiencing a shift from traditional fossil fuels to renewable sources. This transition is expected to have a profound impact on the dry bulk shipping industry.

Iron ore shipments, a significant component of dry bulk trade, are estimated to grow by 3.0% from 2023 to 2025. This growth is supported by an increase in global steel demand, which is a positive sign for the dry bulk shipping industry. However, the coal trade, another significant part of the dry bulk market, is forecast to fall by 6.9% between 2023 and 2025. This decline is attributed to the rapid growth in renewables and increased hydro power in India and China.

The decrease in coal shipments is a clear indication of the ongoing energy transition. As countries strive to reduce their carbon emissions, the demand for coal, a major contributor to greenhouse gas emissions, is expected to decrease. This shift poses a significant challenge for the dry bulk shipping industry, which has traditionally relied on coal shipments as a significant part of its business.

On the other hand, grain shipments are expected to recover in 2024, driving growth in this segment of the dry bulk market. This recovery could offset some of the losses from the decline in coal shipments. However, the overall impact of these changes on the dry bulk shipping industry is yet to be fully understood.

The dry bulk fleet is estimated to grow by 2.7% in 2024 and 1.9% in 2025. However, lower sailing speeds could cause supply to only grow by 1-2% in both years. This slower growth in supply could help maintain a balance in the market, preventing an oversupply that could lead to lower freight rates.

The dry bulk orderbook stands at 86.8 million deadweight tonnes (DWT), up 4.1% y/y, equal to 8.7% of the current fleet. This growth has been supported by a substantial 12% surge in newbuilding contracting in 2023, half of which is expected to be delivered after 2025. This indicates a positive outlook for the industry, with shipowners showing confidence in the market’s future.

However, the industry also faces challenges. Climate regulations are expected to cause sailing speed to fall 1-2% from 2023 to 2025. These regulations aim to reduce the shipping industry’s carbon footprint but could also lead to increased operational costs.

One of the most promising solutions is the adoption of alternative fuel ships. As the shipping industry is under pressure to reduce its carbon emissions, alternative fuels such as liquefied natural gas (LNG), biofuels, hydrogen, and electricity are being explored. Ships powered by these alternative fuels can significantly reduce their carbon footprint. For instance, LNG-powered ships emit about 20% less CO2 compared to traditional fuel ships. Moreover, the development of hydrogen fuel cell technology and electric propulsion systems could potentially lead to zero-emission ships. However, the adoption of these technologies is currently hindered by several challenges, including high costs, lack of infrastructure, and regulatory issues. Therefore, collaboration between shipowners, fuel suppliers, technology providers, and policymakers is crucial to accelerate the transition towards a more sustainable shipping industry.

Another promising avenue is the exploration of ammonia as a ship fuel. Ammonia, when burned in an engine, does not produce carbon dioxide, making it an attractive option for achieving zero-emission shipping. It is also abundant and relatively easy to produce, especially if green methods powered by renewable energy are used. Moreover, ammonia can be stored as a liquid at a much higher density than hydrogen, making it more suitable for long-distance shipping. However, there are challenges to overcome. Ammonia is toxic and corrosive, requiring careful handling and storage. It also burns poorly at typical engine temperatures, necessitating the development of new engine technologies or the use of ammonia in fuel cells. Despite these challenges, the potential benefits of ammonia make it a compelling area of research in the quest for sustainable shipping.

In conclusion, the dry bulk shipping industry is at a pivotal point. The energy transition and climate regulations present both opportunities and challenges. The industry’s ability to adapt and innovate will be key to its future success. The exploration of alternative fuels, such as LNG, biofuels, hydrogen, electricity, and notably ammonia, represents a promising path towards sustainability. However, these solutions come with their own set of challenges, including high costs, lack of infrastructure, and regulatory hurdles. It is crucial for stakeholders across the industry – shipowners, fuel suppliers, technology providers, and policymakers – to collaborate and drive the transition towards a more sustainable shipping industry. The next few years will be critical in shaping the future of the dry bulk shipping industry, and the decisions made today will have long-lasting impacts. As the industry navigates through these changes, it can look forward to a future that is not only profitable but also environmentally responsible.

Author: Rolands Petersons, logistics expert

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