The Baltic Dry Index (BDI), a measure of shipping costs for commodities worldwide, touched a 20-month low of 1,544 points on Thursday, indicating yet another tough year for shipping companies. Last time the index had hit a similar low on April 15, 2009, when it touched 1534.
A slump in BDI directly impacts time charter rates of shipping companies. Average time charter of capesize, supramax, panamax and handymax vessel on Thursday dropped to $14057, $14137, $14981 and $11253 per day, respectively. In pre-recession times, charter rates were as high as $40,000 per day for capesize vessels. Shares of Shipping Corporation of India (SCI), Great Eastern Shipping and Mercator Lines closed at Rs 130.25, Rs 321.65 and Rs 52.15, down 2.4%, 3.86%, 7.37%, respectively, on Friday on the Bombay Stock Exchange (BSE).
?There is no negative change in trade of dry bulk commodities like coal or iron-ore. This is primarily due to excess supply in the market. Charter rates of shipping companies have already taken a beating and we are forced to believe that the worst for shipping is not yet over,? said K Ravichandran, VP & co-head, corporate ratings, ICRA. Seaborne bulk trade in 2010 has, in fact, gone up by 8.2% compared to 2009. Bulk trade in 2010 was around 3,206 million tonnes.
A prime reason for this significant fall in the BDI is oversupply of ships in the market. Although it is difficult to quantify oversupply in the Indian shipping sector, a presentation by Great Eastern Shipping to its investors suggests that world dry bulk fleet addition (only new buildings) in the year 2011 will be 19% over 2010. As of July 1, 2010, world dry bulk fleet stood at 491.9 million dead weight tonnage (dwt). However, optimistically, analysts suggest about 45% slippages in the order book. ?In India almost 10% tonnage is added every year,? said Kapil Yadav from Dolat Capital.
According to Hanoz Mistri, a shipping specialist, about 700 new ships were delivered in the year 2010 and this number is bound to increase this year, thus pressurising time charter rates.
BDI is a composite of three sub-indices that measure different sizes of merchant ships, capesize, supramax and panamax carrying a range of commodities. The dry bulk market includes iron ore, coal, grains, steel, cement, forest products, agricultural products, non-ferrous minerals and metals, collectively amounting to more than 2.6 billion tonnes of cargo annually. Iron ore, coal and grain are the largest contributors, accounting for more than half of the trade between them. Of these, capesize has a higher weightage in BDI.