Bulk carriers sink into the red as cargoes take a dive
Friday, 10 February 2012 | 00:00
A KEY indicator of global trade and economic growth, the Baltic Dry Index, has dropped to a 25-year low, plumbing depths lower than those seen in the immediate aftermath of the global financial crisis.
The shipping index tracks the cost of hiring ''bulk haulage'' vessels used to ship commodities such as coal, iron ore, wheat, and rice around the world on more than 20 shipping routes.
In the lead-up to the financial crisis in 2008, it was considered a key indicator of future trouble, measuring the health of global trade.
The index has fallen 70 per cent since last October, as rents for some voyages plunged to the lowest ever amid record monthly deliveries of new ships, port disruptions caused by bad weather and a week-long holiday in China.
A report from the Baltic Exchange in London says operators of the fleet of more than 8900 ships have been struggling to turn a profit, with some accepting unprofitable charters in a bid to cope with the increase in the supply of new ships.
''Some owners now talk of parking their tonnage unless there's an improvement soon,'' the report says.
Economists say falls in commodity prices have aggravated the problem.
''Shipping rates are dropping because of the excess supply of vessels,'' the chief economist at Commonwealth Bank, Michael Blythe, said. ''It's being compounded by lower demand for ships, which is a reflection of the generally weak global backdrop.''
But Chris Richardson, a director at Deloitte Access Economics, said the index was not as reliable as it used to be. ''If I were looking for where the world economy is headed at the moment, I'd be looking at coal and iron ore prices, and Italian sovereign bond yields,'' he said.
''The world's financial infrastructure is very important, and the Italian cost of borrowing is as good as any indicator at the moment of continuing pressures on that front.''
Analysts say the time to buy and build large bulk haulage vessels can take two to three years, on average. In the run-up to the financial crisis, a large number of ships were ordered.
They point to the large Brazilian miner, Vale, which has been proceeding with plans to build a 24-vessel fleet designed to haul iron ore, vessels that are typically twice as large as other dry bulk ships. These are now coming online at a time when commodity prices are falling.
Source: Sydney Morning Herald