Bloomberg reported that freight rates are poised to rise after tumbling to a two year low as owners of ships hauling coal and iron ore scrap the most vessels in at least 28 years.
According to Clarkson Plc, the world's biggest shipbroker, a total of 38 capsizes, carriers three times the size of the Statue of Liberty, will be demolished this year.
Mr Philippe van den Abeele MD of Castalia Fund Management (UK) Limited said that charter costs should average USD 22,000 in 2011, almost four times today’s rate of USD 5,724.
He added that "From where we are now I don't see much downside. People are depressed, they think it's the end of the world in dry cargo shipping, but they are pushing it too far."
Owners of older vessels may sell them for scrap because earnings from single voyage charters were slashed by a four week, 71% slump in rates. The most demolitions since Clarkson's records begin in 1983 may help reduce a glut as an estimated 200 new capsizes, spanning about 35 miles laid end to end, leave shipyards in 2010.
According to data from the Baltic Exchange in London, Mr Van den Abeele's forecast for this year's average rate is at least 22% higher than any of the quarterly forward freight agreements being traded for 2011. The accords, traded by brokers, allow investors to hedge or bet on the future cost of shipping.
According to the Baltic Exchange,, companies ordered too many ships in 2007 and 2008, when daily income averaged about USD 111,000. Rates reached a record USD 233,988 in June 2008 before plunging 99% over the next six months to USD 2,316.
Korea Line Corporation, South Korea's second largest operator of dry bulk ships, filed for receivership last month after reporting losses in six of the past seven quarters. The 12 member Bloomberg Dry Ships Index fell 4.5% in 2011, extending an 8% drop in 2010, with the biggest declines for Genco Shipping & Trading Limited and Eagle Bulk Shipping Inc.
The Baltic Exchange reported its first ever negative rate for dry bulk freight on January 13th 2011. Costs on the C11 route for shipments to Europe from Asia are now at minus USD 2,227 a day. While that means owners pay customers to hire their vessels, clients still pay most of the fuel costs. For a shipping line wanting to relocate a vessel to a region where there are more cargoes, that's still cheaper than sailing the craft empty.
The glut is also hurting profits in the oil tanker market, where owners' daily returns on the benchmark route from Saudi Arabia to Japan dropped 89% to USD 7,973 in 12 months. For container ships transporting goods in boxes, rates more than doubled in the past year as trade rebounded with the global economy.
Scrap values are at their highest since 2008, with a capsize worth about USD 10 million at current steel prices, said Jamie Dalzell, sales and purchasing manager in Shanghai for Global Marketing Systems Inc. The company, based in Cumberland, Maryland, is the world’s largest cash buyer of obsolete vessels. Cash buyers purchase vessels from owners and deliver them to recycling yards.
(Sourced from www.bloomberg.net)
