Markets in freefall

Markets in freefall
Published: 30 September 2008

With the Baltic Dry Index (BDI) falling throughout the month and
accelerating rapidly as we enter October, all indications point to a
sizeable slowdown in shipping activities both in terms of available cargoes
and investment activity.

Many analysts are claiming that the beginning of dry bulk trade¹s downward
cycle has now arrived and not in early 2009 (as had previously been assumed)
when the next tranche of newbuildings start to flood the market. In reality,
the credit crunch and the associated slowdown in the global economy have
arrived ahead of the impending shipping surplus and with raw material prices
also starting to fall, adding another layer of trading uncertainty, we are
in somewhat uncharted territory - at least for the younger generation of
shipowners, charterers and traders.

And there could be worse to come say brokers, some of whom are now
predicting continuing rate and volume falls in the final quarter of 2008
pushing down Baltic dry bulk indices in all size sectors down by a further
10-15 per cent.

This situation is also spilling over into the sale and purchase sectors
which is now almost devoid of serious interest. On the one side, shipowners
with tonnage on offer reluctant to accept lower offers than advertised and
buyers clearly waiting for the present downward slide in most markets to
perculate through to the relevant S&P departments, which it undoubtedly
will.

Looking specifically at the Capesize sector, the market continued to plummet
through much of September, and both the BCI and the time charter average
fell over 25% in the last week of september to the lowest levels seen since
mid July 2006. The time charter average is now about US$40,000 although
surprisingly some operators believe that the bottom of this current cycle is
close. And the same conditions prevail in the Panamax sectors with BPI down
almost US$20,000 in the final week of September, due to very few cargoes and
a huge amount of open spot vessels.

In the handy sectors, the market has slid throughout much of late September,
one estimate suggesting at around US$1000 per day. USG to Continent is now
close to US$40,000 daily. Supramaxes open in India are presently fetching
low teens for a quick trips to China, depending on exact position whereas
ships for loading Richards Bay back to India are getting more in the upper
teens, brokers report. A Supramax was even done at US$13,000 for the voyage
from Chiwan to USA. However, owners continue to hold out firm period rates,
showing their hopes for a rebound in the market once the Chinese are back at
work after their seaonal holidays.