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Thursday 25 June 2009

Shipping at 1980's freight rates...

(You are getting this note because you subscribed to Brad Skelton’s blog-The Shipping Bloke)

The Baltic Dry Index(BDI) is the exchange that tracks shipping freight rates applying to dry commodities worldwide. In 2008 it peaked at 11793(remember when there was no space and freight rates were skyrocketing?) and then it fell to a low this year of just 772. It has recently risen to about 3750 which is being attributed mainly to imports into China as they stockpile commodities. More on the BDI including a live chart.

The reality for shipping lines right now is that nearly all of them are reporting massive losses, cancelling services and voyages, mothballing fleets and scrapping older ships as world demand for ocean freight is still incredibly low.

One RoRo carrier has so many idle ships that they told me that they are using their ships as floating carparks at sea for some of their car manufacturing customers. This way the shipping line at least gets some revenue on an otherwise idle ship and the automaker finds more storage capacity for the huge inventory they are wrestling with onshore. The container carriers are in a worse situation. Some of them are literally charging only for the fuel they burn just to keep their vessels moving. Anybody that has regularly flown into Singapore knows there are always plenty of ships off the coast. It is one of the largest transhipment and bunkering(refuelling) ports in the world that’s why they gather there. When I flew in there about three weeks ago I was shocked to see more vessels than ever and container ships rafted up, empty, in inlets in groups of four.

Consequently we are seeing desperate freight rates being quoted by many carriers. There is no way that the rate levels in the market right now are sustainable. Many carriers are now dealing with rising fuel prices again and have high debt levels associated with the vessels they own. The new rules of the GFC of “little or no debt” leave them in a vulnerable position with their financiers. Undoubtedly we will see many shipping lines start to falter. I remember too well trying to assist clients with getting their trapped cargo off some Russian ships that had been detained in port due to unpaid port charges back in late 80’s. Sadly I think we will soon see this again.

In the meantime even though the BDI has started to trend up, the freight rates in the market are pretty much at 1980's levels. I think we have recently seen the bottom of the ocean freight market but we are still not far from it. Therefore it’s a good time to look around and make sure that you are getting the benefit of some the lower rates on offer and perhaps explore locking in with a contract if you can.

All for now,
Brad Skelton
The Shipping Bloke

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