Fleet additions could “soften” record freight rates

Fleet additions could “soften” record freight rates

The freight rate for all vessel sizes strengthened significantly in 2004, due in part to developments in the steel and related commodity industries. Although the steel industry has been discussing the global overcapacity problem for some time, the current scarcity of raw materials, coupled with the ongoing economic and industrial changes in China, has increased the urgency of producers around the world to make necessary preparations. The mining sector continues its search for new reserves, while steel mills look for capacity expansions and investments abroad, particularly in the Far East. Sometimes these expansions come in the form of new buildings, and sometimes via mergers or joint ventures. As a result of strong demand, which is expected to last for some time, shipments peaked to record levels throughout the year. The need for new fleets seemed inevitable. SteelOrbis asked some experts in the freight market to comment on the situation at the beginning of the New Year. Freight rates are expected to hover around present levels for the first half of 2005; however, the market may soften a bit in the second half. The rates throughout the year may fluctuate within certain ranges. The new fleet coming into the market will undoubtedly have a softening effect on the freight rates. The fleet sizes of Capesize and Panamax, are expected to increase by about 8% and 5-6% respectively. Experts disclose that the softening may begin as early as the second quarter, but could very well be delayed until the third quarter. Experts point out that one important thing to keep in mind is that the expected enlargement of the Capsize fleet will not be enough to surpass the import volume of China. Therefore, although a certain amount of softening is expected, it will not be huge. The market level of average daily rates for Capsesize vessels currently ranges between US$55'000 and US$95'000. The rates for Panamax, Handymax, and Handysize vessels are respectively US$35-45'000, US$30-35'000, and US$20-35'000 per day.