Commodity shipping costs slumped to the lowest in a quarter century as a glut of new carriers overwhelmed demand at a time of slowing global economic growth.
The Baltic Dry Index (BDIY), a measure of costs across four vessel sizes, retreated 2.6 percent to 662 points today, according to the London-based Baltic Exchange, which publishes rates across more than 50 maritime routes. The gauge fell 61 percent this year and is now at its lowest since August 1986. Rates for Capesizes, the largest iron ore and coal carriers, dropped 84 percent since mid-December.
The decline in rates is masking gains in world trade, with London-based Clarkson Plc, the world’s biggest shipbroker, predicting record cargoes of everything from iron ore to oil. The International Monetary Fund expects a third annual gain in world trade as economies recover from the worst global recession since World War II. About 90 percent of trade moves by sea, according to the Round Table of Shipping Associations.
“The biggest problem is that the fleet is continuing to expand like there’s no tomorrow,” said Sverre Svenning, director of research at Fearnley Consultants AS, a unit of Oslo- based shipbroker Astrup Fearnley. “We’ve seen that the imbalance between demand and supply has just kept increasing.”
The fleet of dry-bulk commodity carriers will expand 14 percent this year, compared with a 3 percent gain in seaborne volumes of minerals and grains, according to Clarkson. Yards delivered 146 dry-bulk carriers last month, an all-time high, Svenning said. The IMF cut its 2012 forecast for global economic growth on Jan. 24 to 3.3 percent from 4 percent.
The global fleet of Capesizes (BCAVRT) expanded 56 percent since the end of 2008 and orders at ship yards are equal to 26 percent of existing capacity, according to data from Redhill, England-based IHS Fairplay. Some ships were ordered in 2008 when daily rates reached $234,000. Charter costs were priced at $5,327 today, Baltic Exchange data show.
Owners are idling vessels rather than accepting current rates and Australia, the biggest iron-ore exporter, is “awash with ships waiting to load,” the Baltic Exchange said in a report to members yesterday.
“I can’t see much happening until March or April 2013,” said Derek Prentis, an 86-year-old shipbroker and consultant who is the Baltic Exchange’s longest-serving member.
Eight of the 14 companies in the Bloomberg Pure Play Dry Bulk Shipping Index (BPG4DBS) will report lower profit or losses in 2012, analyst estimates compiled by Bloomberg show. The gauge slumped 33 percent in the past 12 months, compared with a 5.9 percent drop in the MSCI All-Country World Index of equities.
Returns for three of the four ship types in the index are too low to cover operating costs, and they’re below zero on two of 29 dry-bulk routes, data from the exchange and accounting firm Moore Stephens International LLP show. Capesize and Panamax ships are earning 30 percent and 38 percent, respectively, of the amounts Pareto Securities ASA, an Oslo-based investment bank, says they need to break even.
“We are in the third year of record vessel deliveries,” said Jeffrey Landsberg, president of Commodore Research, a New York-based shipping consultant. “Combined with the Chinese steel market being weak, that’s why freight rates are as low as they are.”
Vessels are slowing speeds and dropping anchor to better manage the oversupply. Capesize vessel speeds averaged 9.24 knots in the week ended Jan. 29, according to data compiled by Bloomberg. That’s the slowest since records started in May 2008.
There are 2,077 dry-bulk vessels at anchor, from a record fleet of 7,933, according to the data. That includes 310 Capesize ships anchored from the fleet of 1,203, nine fewer than the record 318 on Jan. 19, the data show. The overall dry-bulk fleet’s average weekly speed of 8.15 knots for the week ended Jan. 29 is the slowest since at least May 2008, the data show.
Panamaxes (BPRATCR), the largest vessels to navigate the Panama Canal, dropped 4.2 percent to a three-year low of $5,515. Supramax vessels declined 2.8 percent to $6,657 and Handysizes, the smallest ships in the index, slid 2.4 percent to $5,853.
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