The Baltic Dry Index (BDI), a measure of shipping costs for commodities, has plunged by almost 15% over the past month or so, signalling a drop in the trade of coal, iron ore and other commodities on a global scale. While shipping industry experts say this drop could be temporary, given that global trade is on a growth trajectory, they also point out that several shipping companies have been adding capacity, which could well turn out to be in excess of the demand. The BDI had risen to 3,574 levels on March 15, 2010, its highest since January 2010 but dropped to 3,028 points on Friday.
?The fundamentals in China and India are strong, so trade will continue to grow and besides, shipments of crude are picking up. So, it?s possible that the BDI showing a downward trend is temporary and will correct very soon. There is a lot of liquidity in the market and companies are raising money to buy assets, which is a positive trend. In the long term, the BDI will stabilise and will boost freight rates,? said V Ashok, director, Essar Shipping, Ports & Logistics.
As trade is expected to grow, an increase in the supply of ships is the only concern for shipping companies. ?Bulk carriers will see a huge demand in the coming months. So, if the fleet size does not go up then freight rates will stabilise,? said an executive of a shipping company.
The BDI has been volatile ever since it touched a high of 11,793 points in May 2008 and was hit by global slowdown. ?Shipyards are sitting on huge orders from companies and there is some oversupply in the market, with capacity expected to grow by 700 million tonne globally in 2010. Since the slowdown hit the shipping industry, it has not recovered in terms of freight rates till now,? said Vineet Nigam, AGM, Imacs.
BDI is a composite of three sub-indexes that measure different sizes of merchant ships, capesize, supramax and panamax carrying a range of commodities including coal, iron ore and grain.
?The BDI has been hovering at around the 3000 mark for about 3-4 months now. It is volatile and this is likely to continue for the whole year. We might see a slight improvement in the index, but unless the economies stabilises in the US and UK, this trend will continue. This movement can only lead to change in freight rates by a few dollars. As of now, supramaxes and handymaxes are doing well, but capsize and panamaxes are not doing well in terms of their charter rates,? said KS Nai,r director, bulk carrier & tanker division, Shipping Corporation of India.
According to analysts, BDI for the past one year has been vulnerable to Chinese imports. China has reduced its iron ore imports from India due to an increase in excise duty and low grade imports into the country. Also, the tussle between Brazil and China over iron ore price negotiation has been prolonged, thus hampering overall trade and causing BDI to remain in a range.
