Dry cargo freight rates on the decline

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2012 Feb 22

Dry cargo freight rates on the decline

As some of the less optimistic anticipated, the rise in the dry cargo ship rates were short-term. It is now obvious that the rate of demand for imports of raw material to China is not going to be on the last years’ level. China is anticipating debt crises as well and is possibly heading to a recession period in 2013 that it managed to avoid until now. China heading for a recession could put dry cargo ship owners in more trouble they are now if China’s production activity and raw materials imports decrease significantly.

And how are the ship owners coping with low revenues caused by low freight rates? They are trying to decrease the supply side of the BDI equation and fight with the ship’s overcapacity through increased demolition activities and by putting a temporary stop to new dry cargo ships orders. The demolition of bulk carriers doubled in the last week. Ship sales intermediaries could benefit from the situation since it seems that ship-owners have turned to buying second hand vessels rather than ordering new ones. This could help to decrease the current ships oversupply in the market and thus bring freight rates to more acceptable rates.

Still, will the increased demolition of the vessels help fast enough? At the time, dry cargo ship rates are at levels which can hardly cover the operating costs of the vessels. With the fuel prices rising due to the US and EU embargo on Iran and demand for shipping services not picking up, the near future does not send signasl of a significant improvement. Maybe the dry cargo ship owners should start thinking about a serious dialogue and setting a low level limit for freight rates. Surely, the current situation is not sustainable for a period of more than a few months for many of them.

Source: maritime-connector.com, Ivona Milinović

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