Low freight rates for dry bulk cargo have marked the beginning of 2012. Although the Baltic Dry Index has followed an upward trend in the last week, and has increased by 13.44% in the period from February 3rd to February 14th, its levels are still low and give financial woes to bulk carriers' ship owners.

The increase in the BDI is mainly due to China getting back to production activities after the end of its New Years' Holidays. This led to the increased demand for raw materials and shipping services by China and allowed for the BDI and freight rates to slightly recover. In the short term, BDI is expected to continue an upward trend due to the soon expected improved weather conditions that will increase import activities from Australia and Brazil. Still, it is not real to believe in an the long run upward trend nor for the  rates in dry bulk cargo shipping sector to recover during 2012. Expected increase of the fleet of bulk carriers in 2012 is 10-15% while demand for this year is projected to have a 3-5% increase, thus, will be lagging behind.

  While 2012 is going to be a tough year for the owners of bulk carriers feet, on the other hand, exporters and importers of commodities will not mind the low BDI levels. For example, Canadian grain exporters, that rely heavily on the freight rates due to large distances their products have pass on their way to China, will gain increase their competitiveness compared to Australia or Brasil. Their produce will not be as expensive for distanced markets when lower freight costs are incorporated into the costs. This could give a boost to Canadian grain  production and farming sector.

On the other hand, low freight rates will cut costs for companies that rely heavily on imports. A good example of this notion are Chinese private-sector power utilities. These utilities are heavily dependable on coal of which roughly 30% comes from import. It is needless to say that they will significantly reduce their operating costs by paying less for freight services of coal needed for operations.

What is a crisis for one, is an opportunity for the other. For bulk carriers owners, 2012 is expected to be very challenging. At the moment, already 150 bulk carriers are removed from active service, and there are many indications that this number will increase during 2012. On the other hand, companies dependable on import or export could swim out of the global level crisis, if not more prosperous, than at least intact.

Source: maritime-connector.com; Ivona Milinović