The sector has surprised to the upside in Q1 – can the market manage downside risks to post more gains in 2026 asks Will Fray, a director at Maritime Strategies International.

While recent events in the Middle East have disrupted global shipping, the dry bulk market has remained relatively insulated compared to its peers. In aggregate, a direct loss in demand is broadly offset by a loss of supply from vessels being trapped West of the Straits of Hormuz, although secondary effects on fertilisers, grains and coal markets could have a considerable impact.

Nonetheless, as MSI notes in its Q1 dry bulk market report, there are other more significant drivers of the market, and any potential upsides resulting from these latest disruptions will only add to an already positive outlook for bulker markets this year.

Indeed, even prior to the start of Operation Epic Fury in late February, bulker earnings had been robust; the BDI averaged 1,906 points across January and February, compared with just 911 over the same period in 2025. This strong start to the year has clear parallels to the counter-seasonal strength observed in early 2024.

Like in early 2024, recent freight market strength has been led by the outperformance of the capesize sector. Strong Chinese import demand has been a key support, driving iron ore port stockpiles to a new record of over 150m tonnes. Iron ore cargo loading has been very strong out of Brazil, as the current La Niña has brought drier conditions, supporting iron ore mining activity and logistics. 

Meanwhile, Australian iron ore shipments have also been robust, supported by record-high port throughput in Pilbara, with exports rising 13.2% year-on-year over the first two months of the year. At the same time, Guinean bauxite exports have entered their seasonal peak, with volumes across January and February increasing by 25% year-on-year.

Special surveys hit capesize supply

It is not only stronger demand that has supported the freight market. First, low fleet growth has been a key factor, particularly for the capesize segment: just 7.2m dwt of new capesize tonnage was delivered in 2025, equivalent to 1.9% of the fleet, offset by 1.1m dwt scrapped. 

A reduction in trading efficiency has also played a significant role, on the back of longer average voyage distances, higher port days and slower speeds.

Another important factor has been a withdrawal of ships from the fleet to undertake special surveys – this is having a significant bearing on Capesize market strength in Q1.

MSI’s analysis suggests Q2 2026 will see an uptick in capesize effective fleet capacity as the vessels taken out of the market for special survey in Q1 re-enter the fleet. Second, the direction of supply growth for the sub-capesize fleet is considerably more expansionary, with a delivery schedule that includes more than 200 panamax vessels expected to enter the fleet during 2026. This is a key factor behind MSI’s projection that the gap between capesize and panamax earnings will widen this year.

Freight and futures

In MSI’s latest base case, included in its Q1 report, this wider differential between capesize and panamax earnings materialises mainly through a stronger outlook for capesize freight markets, although we are more positive for charter earnings across all bulker benchmarks when compared with our previous update. 

MSI is not alone in moving toward a more positive outlook for bulker freight markets as data looking at the historical monthly average capesize 5TC alongside the corresponding FFA forward curves as of July 2025, December 2025, and in February 2026 shows. 

Notably, the Q2 2026 capesize contract was priced at $19,500 a day in July 2025 but increased to $32,500 a day by late February 2026, representing a 67% increase over an eight-month period. The forward curve has softened marginally since February’s peaks but is still close to $30,000 a aay for the remainder of this year.

Iron Ore and bauxite positive

Overall, dry bulk trade is now forecast to grow by around 1.9% year-on-year in our latest base case for 2026. In addition, the impact of expanding fleet growth will be leveraged by the rising inefficiencies of bulker shipping as distances continue to expand and ship speeds fall this year. 

MSI’s latest Q1 2026 model update forecasts dwt demand to expand by just under 3% year-on-year in 2026, weighted heavily in favour of capesize ships.

Scrapping subdued

How will supply respond to a more positive view for dry bulk demand? First, MSI’s more positive outlook for vessel earnings will keep a lid on ship scrapping activity. In our latest base case, we now project scrapping of just 4.5m dwt in 2026 – broadly on par with 2025. With deliveries now expected to be 42m dwt this year, net fleet growth will be the highest for 14 years at 37.6m dwt, equating to an expansion of 3.6% year-on-year. 

When adjusting for unavailable vessels and taken on an annual average basis, this translates to supply growth of 3.1%. With supply growth slightly higher than demand growth, MSI’s base case outlook for the bulker fleet employment rate in 2026 implies a marginal weakening from 88.1% in 2025 to 87.9% in 2026. Despite recent positivity, this analysis does not present an overly bullish conclusion for the remainder of the year, although divergent trends across the bulker segments are expected to result in differing outcomes on vessel earnings by size.