American Shipper

Dry bulk charter rates plunge, market ?upside down?

Dry bulk charter rates plunge, market ôupside downö

Charter rates for dry bulk ships continued their historic plunge this week, with demand for smaller ships remaining more buoyant than larger vessels in some cases.

   The bellwether Baltic Dry Index fell another 16 points on Tuesday to 684, its lowest level since April 1986, and just 5.8 percent of its high of 11,793 points on May 20, 2008.

   The dry index, which is compiled by the Baltic Exchange in London, is based on an assessment by shipbrokers of the cost of chartering various dry bulk commodities along 26 shipping routes measured on a time charter and voyage basis using handymax, Panamax and capesize dry bulk carriers.

   The exchange also maintains sub-indexes for various size ships, and those for capesize ships (greater than 100,000 deadweight tons) and Panamax ships (60,000-80,000 dwt), hit all-time lows of 830 and 589, respectively on Tuesday. The sub-indexes for supramax (52,000-60,000 dwt) and handysize (35,000-50,000 dwt) ships are also near their lows for the year. Spot rates show a market inversion occurring in the bulk trades where smaller ships are commanding better prices than much larger vessels.

   The Baltic Exchange reports spot time charter equivalent rates on the four main shipping routes for different size ships. The charter equivalent rate for a capesize ship was $2,316 per day, less than 1 percent that of the record high of $233,988 recorded on June 5. In contrast, rates for Panamax ships were $4,499 and for supramax ships was $6,244.

   Basil Karatzas, a broker at Compass Maritime Services in Ft. Lee, N.J., said in some instances smaller ships are commanding better rates than large vessels because of their flexibility.

   For example, while capesize ships are largely restricted to moving cargoes such as iron ore and coal on a limited number of routes such as Brazil to China, smaller handysize and supramax vessels can trade a much wider range of cargoes and call at many ports. Even if shippers have trouble finding demand for 50,000 dwt of cargo, they can easily move parcels of cargo for several shippers and keep their vessels trading.

   Don Frost, a Stamford, Conn.-based consultant and broker, noted that handy and supramax vessels are often used for moving building materials such as aggregate and cement, and have benefited from the fall in commodity and transport prices, which now makes sourcing raw materials over longer distances more attractive than it was earlier this year.

   Spot rates are often much lower than those for even modest length charters. The public company DryShips in its daily market report Tuesday estimated the period rate for a capesize ship for Atlantic delivery to be $18,500 per day for a four- to six-month charter and $26,000 per day for a one-year charter. It estimated the period rate for a Panamax ship for Atlantic delivery to be $13,000 per day for a four- to six-month charter and $17,000 per day for a one-year charter.

   Frost noted that because spot rates are so different from period rates, many shipping analysts believe the Baltic Dry Index is less useful as an indicator of current rates than as an indicator of market sentiment.

   With freight rates so low, the stocks of many shipping companies have taken a beating. Dryships, for example, closed at $3.99 per share compared to its high of $116.43 on May 19. ' Chris Dupin