Hitting the bottom

HOW low can the Baltic Dry Index go? That is the question the owners of bulk carriers—ships that carry loose commodities such as coal and iron ore—are asking themselves. Between the start of the financial crisis and January this year, the index—a measure of bulk freight rates—had fallen by 95%. Many in the industry had hoped it would start to recover this year. But there is not much sign of that—and it looks as if more pain is still in store for shipowners.

Overcapacity is the main reason for such low rates. When the index approached an eye-watering figure of 12,000 in 2008, shipyards could not keep up with the orders for new bulk carriers. But then the bubble popped, as demand for commodities collapsed due to the financial crisis, and Chinese economic growth underwent a structural shift away from heavy industry. The index fell to a 30-year low of around 500 in February. There was a modest rebound in the summer, but it did not last.

Shares in dry-bulk shipping lines have tanked as a result. The Guggenheim Shipping ETF, a weighted index of such shares, lost 23% of its value in the first nine months of the year. Some...



via Business Feeds

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