Monday, July 12, 2010

Dry Bulk Charters Continue As Index Slumps Further

Outlook in the Short Term Looks Bleak
Shipping News Feature

UK – GLOBAL - Those who look to the Baltic Dry Index rather than casting the bones or reading the tea bags to predict the success of global trade must feel like a boxer on the ropes at the moment. Trade continues of course, last week Diana Shipping announced that it has entered into a time charter contract with J. Aron & Company, New York, for one of its Panamax dry bulk carriers, the MV Naias, at a gross charter rate of US$19,750 per day commencing in September and lasting around two years.

On Friday however the Index fell again, the most prolonged continuous drop for almost a decade, through the magic 2000 level, back down to 1902 points and having descended for thirty one straight sessions, and with analysts predicting no prospect of an immediate recovery the numbers at their lowest level since last May. Once again the Chinese market holds the key and with intense internal competition amongst steel producers causing falling rolling mill prices in a declining market, there seem few grounds for optimism.

Obviously less demand for product means mines world wide have to reign back on production leaving an excess of ships and consequently depressing freight rates. With charter rates standing at under $17,000 a day for Panamax vessels and $18,000 for Capesize, Diana’s latest deal looks to be favourable but one can compare earlier charters as reported here in January and March.

As the January article featured an almost identical contract with the same client one can see, in very real terms, how the drop in prices can have a dramatic effect on any shipping line trying to maintain profitability in what is currently a very tricky market.

Fortunately it is not all bad news, Diana also signed another similar deal (same rate, same duration) last week for another Panamax, MV Oceanis a 75,211 dry bulker, with China National Chartering Co. Ltd (Sinochart), Beijing, and all owners are holding their breath for another couple of months until they hope, iron ore stocks within China will have been depleted to such a low level that there will be a rapid rise in charter rates.

For impartial observers it makes an interesting comparison with the world of container shipping where, generally speaking, ship owners have held their nerve and increased TEU and FEU rates after the collapse of tonnage levels since 2008. The container lines have largely accepted that they will suffer depressed cargo levels compared with those enjoyed previously and are actually raising extra revenue as opposed to the free market exchange system which acts as a guide to floating rates and can, some opine, actually depress bulk rates to unacceptable levels as owners fight each other to generate any revenue available.