There's been a significant increase in the annual growth rate of demand for dry bulk commodities. The driving force has been the major advances in industrial development within the economies of China, India and Southeast Asia during the past five years.

This demand for raw materials by China, India and other Pan-Asian developing countries is driving record exports from the United States and other commodity-rich nations, and the effect of this demand has been the strong and firm support of freight rates.

As such, the big picture for the dry cargo markets has been changing, and a significant number of dry bulk companies have entered the U.S. public market, raising close to $2 billion in primary and follow-on offerings to fund the expansion of their fleets.

Global Trade Depends on Cargo Ships

When you consider that two-thirds of the world’s goods are transported by sea, it's no wonder that investors would be wise to get more involved in this sector. International shipping plays a vital role in commodity trading and facilitating global trade, and that’s not going to change anytime soon. To put it in perspective, dry bulk shipping of commodities accounts for just below 40% of total seaborne freight. It’s a whopping amount of goods and a strong, high-yield sector! To learn how you can cash in on the commodity boom, you’ll want to read, “Commodities: Your Guide to Profiting Smartly.”

Dry bulk shipping is generally divided into two distinct categories: major bulks and minor bulks.

Major bulks include iron ore, coal and grain that are shipped on the larger-size vessels, called Capesize (because they can’t fit through the Panama or Suez canals and instead must sail around the Cape of Good Hope or Cape Horn) and Panamax (because they can fit through the Panama Canal), and together these vessels comprise about 65% of dry bulk trade.

Minor bulks are fertilizers, steels, sugars, cement and other commodities that are shipped in smaller, more versatile vessels called Handymax and Handysize, and they comprise about 35% of the dry bulk commodities trade.

Iron ore and coal are the two most important major bulk commodities, with about 27% and 26% of total dry bulk trade, respectively, with grain accounting for the remaining approximately 12%. These are the commodities most in demand to the world’s biggest customer China.