Since mid-December the dry cargo freight rates have been in a free fall. The reasons are varied ranging from port congestion woes, disruption in the production of key bulk freights and widespread economic fears, starting with the US. The bulk shipping market, and indeed shipping in general, has always been thought of as cyclical. But is this a phase or a trend? Is the rate fall a dip or a depression?- By George Lauriat, AJOTThe Baltic Exchange Dry Index (BEDI), a measure of the spot charter rates for the combined tonnage sizes of bulk ships, has for two years been rising hitting 11,039 November 13th 2007. On January 17, falling 443 points or 6.4%, the largest single day decline. On January 18, the BEDI stood at 6,462 points, compared with 9,143 points at the end 2007. With the decline in the US stock market and the general economic jitters globally, is the decline in spot charter rates part of an overall economic trend, a genuine economic trend or simply a momentary dip in an otherwise healthy market?
Certainly, the drop in freight rates is a relief to bulk shippers who have been vexed by both escalating freight rates and a severe shortage of bottoms to carry the cargo. Since the dry cargo market is primarily moved by cargo rather dictated by schedule, supply and demand make the business far more volatile than liner shipping. The basic dry cargo market consists of minerals; steel and steel related products, agricultural products and neo-bulks that can be almost anything ranging from vehicles and boxed parts to bagged coffee beans or cocoa and building materials.
From an overall dry bulk market standpoint the US is a major exporter of agricultural products such as grains and minerals like coal and a major importer of minerals and neo bulks of all types. Over the past three years, most of the rise in dry cargo freight rates has been attributed to the economic expansion of China. Steel production and the Chinese import and export of coal have provided a strong demand for ships. This coupled with the demand for agricultural and neo bulks has buoyed freight rates. To a large degree, interpreting Chinese demand is key to determining market direction in the dry bulk market.
MIXED MESSAGESSome of the obvious reasons for the decline in freight rates are on the supply-side disruptions. For example, Consol Energy, Inc. is close to reopening its Baltimore terminal that was forced to halt shipments when a portion of a pier collapsed five weeks ago. The importance of the pier is significant as it can handle about 15 million tons a year. Similarly, in Brazil, Rio Vale said it halted iron ore exports from the port of Itaguai because of repairs caused by a collision at the harbor. According to a variety of press reports, China’s government has requested that the country’s port authorities halt coal loading in early February (Chinese New Year) and early March (parliamentary meeting), The move is probably in response to power shortages, which have caused around five percent of China’s coal-fired power stations to close. Chinese media reported on January 23 that steam coal stockpiles are now almost 40% below normal levels, sufficient for just eight days’ generation. Heavy snowfall in mining regions, high import coal prices and transportation difficulties have been blamed for the crisis. It also hasn’t helped the situation that the annual price talks between Chinese steelmakers and iron-ore producers, including Cia. Vale do Rio Doce, the world’s largest, have stalled. It has also been widely reported that Vale has cancelled five million tons of iron ore shipments scheduled for the 1st quarter of 2008. These reportedly comprise 30 cargoes to China, while another 20 cargoes due to be shipped in February will be delayed. Add in the fact that severe weather has hampered some Australian exports from Queensland (BHP Billiton Mitsubishi Alliance (BMA) decl