A week after the tsunami disaster in Japan, the Baltic Dry Index (BDI), the benchmark index for commodity shipping, slid by 1.8% to 1,533 points on Thursday.
This was an indication that the reconstruction efforts by Japan had done little to boost dry bulk shipping freight rates that have been on a downtrend year-to-date.
So far this year, the BDI peaked at 1,693 points on Jan 4 and the lowest was at 1,043 points on Feb 4.
Dry bulk vessels carry global commodities such as coal, finished steel, grain, sand or gravel which are vital construction materials.
Dry bulk rates were under pressure from last year to the first quarter of this year due to the flooding in Queensland, Australia since there were fewer coal shipments to be exported. Australia is of the world’s largest overall coal exporters.
According to Reuters, Japan’s reconstruction efforts would do little to boost global freight rates that were nearing two-year lows as fleet expansion overshadowed any demand surge from the world’s third largest economy.
The report cited Hong Kong-based Citigroup shipping analyst, Rigan Wong, who said there was as much as a 10% difference between demand and supply growth this year.
“Japan alone will not be able to push up demand in line with supply. That just isn’t possible,” he said.
Macquarie Securities shipping analyst Janet Lewis said she didn’t think Japan would affect dry bulk rates all that much.
“I still think we could see fresh two-year lows. Through the end of the second quarter, we will see the BDI firming up but probably not a whole lot higher than where we are now. I don’t expect we will get above 2,000 points anytime soon. Maybe we can get up to 1,700,” she said.
Reuters also reported that the supply glut was best reflected by the severe downturn in the daily earnings of cape-size vessels, which briefly dipped below US$5,000 in February after surging to nearly US$60,000 eight months before. Earnings traded at US$9,430 on Thursday.
Dry bulk ship owners ramped up orders of vessels before the economic downturn in 2008. It normally takes three years for a ship to be delivered and most of those vessels are now coming online, exacerbating an already oversupplied market.
The Reuters report also quoted an analyst who said the world’s dry bulk fleet, responsible for shipping iron ore, coal, grains and other commodities, was expected to grow between 11% and 13% this year to top an unprecedented 600 million deadweight tonnes - that would far outpace demand of between 5% and 8%.
On the bright side, the report said many of the ports in Japan were unscathed by the earthquake, providing ample capacity to import coal and other dry bulk goods.