The markets must sustain record high freight rates

The markets must sustain record high freight rates

Freight rates have reached record high levels that have not been seen during the last four or five decades. The indices of the Baltic Exchange, the shipbrokerage market in London, are the reference for the freight rates worldwide. And “The Baltic Dry Index” is the benchmark for freights for bulkcarriers, that are used for transportation of bulk commodities like grain, steel, iron ore and coal. That Baltic Dry Index have recorded an incredible increase during the past 12 monthds. The year-on-year increase has astonishingly been almost 400%. The highest increase in the same period has been recorded during the past four weeks, in which the index has moved more than 50% upwards. Once again the Chinese market is to blame. Analysts point out the Chinese imports of steel and iron ore as the main reason of the increase. Secondly the unexpectedly high coal imports by the EU, the US and Japan, supported the upward trend of the freight market. Moreover the North American grain season has also started strong and had its impact on the market. As there is no expectation of the Chinese imports to slow down, the shipping market analysts do not expect the freight market to cool down due to supply/demand imbalance. The worldwide ocean-going bulkcarrier fleet has been working almost at full capacity already. However, demand for bulk carriers is forecasted to grow by another 10% next year following a similar increase this year. Despite the growth in demand, the supply of bulk carriers are not expected to grow more than 3%. Under these circumstances, the freight market is expected to keep going up in the short run. Therefore, shippers of raw materials and steel products have to calculate their freight costs very carefully for the next 3-6 months time. However as the demand for bulkcarriers is forecasted to slow down and start coming down from its record high levels, during 2004, the dry market is also expected to start cooling down and softening as a consequence of increasing deadweight tonnage supply within the same year. Having said that, it may still take two to three years for the freight market to drop down to the levels of 2001.