everything: Baltic Dry Index Plunges To New Low Of 763!

For a while, it appeared that the Baltic Dry Index had stopped falling. It seemed to be drifting around 830 points. However, it looks like I am wrong as the Baltic Dry Index plunged another 5.1% or 41 points to close at 763 points!

763 points!

Remember its high was some whopping 11,793 in May 2008!

Global shipping demand is really grinding to a halt.

And when ships don't move it means there is no trade.

When there is no trade, can you even imagine the consequences and the implications for the GLOBAL economy?

Yes, I have no doubt that this crisis in the shipping industry is only temporary but the less than financially strong companies would be hurting real bad. Shippers and ship builders would be hurting real bad for most in these industry are highly leveraged and the longer the situation persist, as mentioned in a lot of earlier postings by industry experts, I would not be surprised to see more less than healthy companies going under. ( Do note the collapse of Ukraine’s Industrial Carriers and UK-based, New York-listed Britannia Bulk. )

Just published on FinanceAsia.com Shipping outlook bleak

The global slowdown and overcapacity take their toll on the shipping industry.

Global shipping demand is shrinking, as evidenced by the fact that the London Baltic Dry Index is trading at its lowest levels in years. Closer to home, October throughput at the Hong Kong port was down after posting strong gains through the summer.

The decline in shipping traffic has been sudden and dramatic. “Quite frankly, no one’s ever seen anything like this,” says Standard Chartered managing director and head of shipping finance Nigel Anton. “It’s been quite incredible across all the sectors, but particularly in the dry bulk and the container market. There has been some weakening on the tanker market but nothing like what we’ve seen on the dry and container markets.”

The Baltic Dry Index, a measure of global dry bulk freight rates, closed at 804 points on November 25, down 93% from the high of 11,793 points in May.

In Hong Kong, the Transport and Housing Bureau reported that October throughput was down 2.9% to 2 million TEU (twenty-foot equivalent units or one standard container). This comes after the bureau posted a 7.8% increase in port throughput in July.

The outlook for shipping companies has weakened amid the bleak global economic outlook. Last week, Moody’s Investors Service released a report downgrading the outlook for the Asia-Pacific shipping industry across all sectors – dry bulk, container and tanker – to negative for the next 12 to 18 months. The report cited slack global growth, unstable operating costs and volatile shipping rates as reasons for the downgrade.

The frozen credit markets are seen as at least partially responsible for the negative outlook. "A freezing of trade credit has exacerbated a slowdown in demand for commodities and contributed to the recent, unprecedented plunge in the sector's Baltic Dry Index," says Moody’s senior credit officer, Peter Choy.

Moody’s maintains stable ratings for most of the region’s shipping companies including MISC Berhad, Nippon Yusen Kabushiki Kaisha (NYK), Mitsui O.S.K. Lines (MOL), BW Group and Humpuss Intermoda Transportasi (HIT).

One impending challenge for the industry is the burgeoning order books at the shipyards. “While existing owners are laying up ships we have this massive order book and a lot of those ships will clearly not be delivered,” says Standard Chartered’s Anton. “People will begin to walk away from orders, they already have, because they have generally paid very little in deposit and just say: ‘Fair enough, I’ll leave the deposit on the table and just walk away.’”

Moody’s reports that current orders for dry bulk and container lines is equal to roughly half of current capacity. For tankers, orders are equal to the current capacity.

Anton predicts that a large number of regional shipyards, especially the newer players and those not yet open, will either close or never come to fruition.

While shippers and shipyards are dealing with overcapacity, the value of current assets continues to decrease. “I was just chatting to a broker who is trying to circulate a ship. This is a new ship that six months ago was valued at $80 million and now they are looking at offers of about $35 million,” says Anton. “Six-months ago the chartered rate was about $45,000 a day but now you’d be lucky to get about $15,000.”

The decline in ship values is in no small way influenced by the credit crunch. The value of ships is determined by the forecasted charter rate for different types of vessels, for example the Baltic Dry Index determines the market rate for dry bulk carriers. As charter rates fall, the value of ships declines and forces shippers and banks to revalue their assets.

When the shipping market will turn around is anyone’s guess. “A volatile and extraordinarily challenging dry bulk market is anticipated to continue through Q4 2008 and beyond,” Hong Kong-listed Pacific Basin Shipping notes in a third quarter market update.

Both Standard Chartered’s Anton and Moody’s reiterate the sentiment that a volatile and unpredictable sea freight market will continue for an indeterminate period into the future.

“The current crisis started with the banks, then you could see it in the consumers and now the car makers in the States may go into bankruptcy – it is one thing knocking after the other,” says Anton. “We’ll have to see how it pans out.”

And on the UK Financial Times: Dry bulk shipping rates approach all-time low.

Participants in such chains are now nervous they could collapse if just one participant suffers financial problems. Some have already been hit by the collapse of Ukraine’s Industrial Carriers and UK-based, New York-listed Britannia Bulk.

Other past postings on Baltic Dry that matters

1. Views On Current Weakness On Baltic Dry Index

2. The Collapse of the Baltic Dry Index

3. Goldman Downgrades Bulk Shippers!

4. Baltic Dry Index Keeps Falling!

5. Baltic Dry Index Stages Strong Rebound!

6. Baltic Dry Index Set For Strong Recovery???

7. Baltic Dry Index Plunges To Seven Month Lows!

8. The Baltic Dry Index Keeps On Plunging!

9. Baltic Dry Index Continues To Plunge

10.The Plunging Baltic Dry Index And The Dangers Of Using Forward PE!

11. Baltic Dry Plunges Below 2000!!!

12. Admist The Plunging Baltic Dry Index, Dr. Marc Faber Warns That Some Shipping Lines Could Go Bankrupt!