Freight Rates to Fall?

Tuesday, May 01, 2007
While the international ferver for all things maritime continues to sweep the globe, with record high markets in the construction of ships, boats, and offshore structures, a recent report could serve as the proverbial “shot across the bow” that the market could be starting to cool.

With a record number of ships set to enter the market, a recent Bloomberg report said that he cost of shipping coal and iron ore is about to decline as the supply of cargo vessels overwhelms demand.

With China cranking up its shipbuilding machinery, and Korea and Japan working feverishly to fulfill orders also, there will be so many vessels entering the market that shipping costs, now at an all-time high, will fall 40% by 2010, according to futures contracts traded privately among banks, transportation companies and hedge funds, Bloomberg reported.

Commodity-shipping rates have soared 41% this year and ended last week at a record 6,230 on the Baltic Exchange. Rates may begin to decline next month, when cargo vessels become available as port officials in Newcastle, Australia, clear one of the worst-ever traffic jams. A revival in iron ore trade between India and China that has reduced the length of voyages will free more freighters.

The cost of renting the biggest capesize carriers climbed 73% in six months to a record $106,289 a day. Diana Shipping Inc., which paid a record $110m for a capesize carrier in March, agreed to daily rental rates for the ship of $52,000 every day for more than four years from BHP Billiton, the world’s biggest mining company. Diana will earn sales of at least $75m. (Source: Bloomberg & Staff)

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