Fresh low on Baltic Dry Index could bring Indian Ocean trade to a standstill

A fresh low of 402-level on the Baltic Dry Index (BDI) yesterday may bring trade across the Indian ocean-Asia Pacific market virtually to a standstill on the back of postponement of trade contracts and strong aversion to get into long-term deals.

“The trade climate is extremely gloomy and full of insecurity as charterers are not sure if the price at which they have negotiated is the right low price,” Captain Kiran Kamat, owner of Link Shipping & Management System, a leading chartering and shipping company, told Business Standard. “Charterers are unable to take a call and are fearing commitment towards deals, which is leading to last minute back out (from deals) even if ship-owners are being flexible,” he added.

A charterer may own a cargo and employ a ship-broker to find a ship to deliver the cargo for a certain price, called freight rate. A charterer may also be a party without a cargo, taking the vessel for a specified period from the ship-owner and then trading the ship to carry cargoes above the hire rate.

“There have been very few inquiries already and even out of those, most were not firm. Out of five inquiries, three have failed,” said a ship-owner, on condition of anonymity. 
“The charterers are fixing rates and then trying to trade the cargo. Freight is low enough, but still charterers are not able to sell the cargo,” he added.

The Baltic Dry Index measures change in transportation costs of raw materials such as metals, ore, coal, grain and fertilisers by sea. The index has been on a continuous fall since August following China's economic data, which actually set the strong bearish tone for the bulk trade market not just in the Asia Pacific region, but across the globe. 
China being the world’s largest importer and exporter of several commodities, a slowdown in its economy indicates grim trade climate across world.

“Interest in fixing freight contracts for a longer period is absolutely absent from the charterers’ side,” said a ship-charterer for a steel company. “No charterer wants to lock in freight at a premium to spot price as they see little upside over this year,” he added.

Supply of vessels on water is outnumbering demand from cargoes, said industry officials. 

“The ship-owners may have to consider laying off some of their vessels to stem the slipping freight rates,” said the ship-charterer.

Throwing light on the India-specific trade scenario, industry officials said that that higher coal supply in domestic market, iron ore export market being completely out of picture due to the ban on exports and a diminished fertiliser trade have all left small-sized Supramax and large-sized Capesize vessels completely idle, pushing even the ancillary industry out of job. The ancillary industry caters to the Capesize vessels as these ships by virtue of their size need constant maintenance.

Traditionally, coal was imported in India via Capesize vessels, which was then loaded with iron ore for exports. This would keep the vessels occupied both ways. Since the ban on iron ore exports, it has been quite difficult for charterers to bring in large sized vessels. “Now, with such a business climate, usage of such large vessels is ruled out completely,” said Kamat of Link Shipping & Management System.

Baltic Dry had hit an all-time high of 11,793 on May 20, 2008. Since then, the index has been very volatile and in fact has been in trough for a longer-than-stipulated period.

Shipping is a gamble and one cannot say when things will look up. It is all about being optimistic in the business, said industry officials.

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