Will dry-bulk shipping freight rates peak in 2008?

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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.

The Baltic Dry Index, an overall measure of commodity- shipping costs on different routes and ship sizes, rose 1.1% to 10,867 on November 9, according to data on the London- based Baltic Exchange. The measure advanced for the fourth straight day and is down 1.5% from the record 11,033 reached on October 29.

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 afield. 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.

‘’The market is again at full steam ahead,’’ after the recent decline in rates for capesize vessels, Oslo-based Pareto Dry Cargo AS said in its weekly report. ‘’The Atlantic market is very firm,’’ Pareto said in its November 9 report. Capesize ships can transport 175,000 tonne of cargo.

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

The strength of capesize rates in the Atlantic has prompted the splitting of capesize cargoes for transport on panamax vessels, London-based shipbroker Galbraith’s Ltd. said in its November 9 report. With the so-called cargo splits, ‘’confidence returned immediately,’’ in the market for smaller panamax vessels, Galbraith’s said.

The charter fee for panamax vessels, able to carry 70,000 tons of cargo, rose 0.4 percent to $91,991 on November 9, based on the Baltic Exchange’s data. It rose 1.8% in the past three days.

Iron ore prices have gained threefold in the past five years as surging demand from China, the world’s largest consumer of the main steel-making material, outpaced the ability of mining companies to expand output. 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 website. Ships waited an average 13.96 days to load the fuel from 14.77 a week before.

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, DBS Vickers Securities said in a November 9 report on Pacific Basin Shipping Ltd., a Hong Kong-based operator of dry- bulk ships. ‘’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,’’ Gideon Lo, an analyst at DBS Vickers, wrote in the report. He recommended that investors buy Pacific Basin stock.