December 04, 2008

Dry bulk freight rates rise due to demand and choked Ports

Bloomberg reported that dry bulk shipping rates may extend their gains after rising the most in a month, boosted by congestion at ports and demand to transport iron ore, coal and other goods on large ships.

According to data on the London based Baltic Exchange’s Baltic Dry Index, rose by 1.1% to 10,867 on November 9th 2007. The measure advanced for the fourth straight day and is down by 1.5% from the record 11,033 reached on October 29.

According to the Baltic Exchange's data, The hiring rate for a Capesize vessel jumped by 2.8% to USD 182,965 on November 9. That was the third straight day of gains in chartering costs for such vessels. The rate has surged 12% in the past six days.

Ships waiting to load thermal coal at Australia's Newcastle, the world's biggest export harbor for the fuel, rose a third week. At Newcastle, 42 ships were waiting to load coal in the week ended this morning from 40 a week earlier, according to the Newcastle Port Corp.'s Web site. Ships waited an average 13.96 days to load the fuel from 14.77 a week before.

Dry bulk shipping rates have more than doubled in the past year, as China's switch to being a net coal importer in January prompted other Asian countries to source the fuel from further fields. That has tied up ships longer than usual and caused port bottlenecks. Anticipation of higher iron prices next year is also driving imports by steel millers and traders in China, creating more demand for sea transport.

A Hong Kong based operator of dry bulk ships said that high rates to move commodities in bulk may be sustained until 2008 because of the limited supply of new vessels in the near term, port congestion and increase in average voyage distances.

Mr Gideon Lo an analyst at DBS Vickers wrote in the report that “We expect the peak of dry bulk rates should happen in the first quarter 2008 due to the pre stocking of iron ores before the possible higher contract ore prices effective from April 2008.” He recommended that investors buy Pacific Basin stock.