Baltic index down in the dumps as trade dries up

The Baltic Dry Index, the benchmark for dry bulk shipping freight, has fallen to as low as 300 points, sparking fears of vessels being laid off, if trade deteriorates further.

In 2008, the index had crossed the 11,000-mark. It started falling because of China’s significantly reduced presence in the international dry bulk segment. For the last few months, it fell week after week.

While agents claim that ships could soon be docked as there was hardly any freight to carry, most shipping companies did not comment on the matter.

“The laying-up of ships has already started in the Far East. As shipping is an international business, India will obviously be affected,” said Captain Anoop Sharma, managing director, Essar Shipping. He added his company was doing better than its peers as its other business segments were doing well.

Shipping Corporation of India, Great Eastern Shipping and Essar Shipping are the leaders of the domestic market.

“If this trade climate prevails, ship owners will have no option but to shut down vessel operations. I don’t see that situation too far away. Maybe in the next three to six months, owners may have to take such a call. Currently, however, vessel owners continue to look for business,” said shipping agent Daniel Chopra, also the managing director of Mumbai-based Elektrans.

The index has been on a continuous fall since August last year following China’s economic slowdown that led to the devaluation of their currency, which actually set the strong bearish tone for the bulk trade market, not just in the Asia-Pacific region, but across the globe. Since early this year, the index has touched new lows and was at 310 on February 2 from a high of 1,222 on August 5, 2015.

China, the world’s largest importer and exporter of several commodities, is now only importing sugar in a big way. A slowdown in its economy indicates grim trade climate across world.

“If owners lay-up vessels, it would be the first time since the second half of 1980,” Chopra said.

According to the 2014 annual report of United Nations Conference on Trade and Development, the world fleet reached a total of 1.69 billion dwt in January 2014, of which bulk carriers accounted for 42.9 per cent, followed by oil tankers at 28.5 per cent and container ships at 12.8 per cent.

BDI had hit an all-time high of 11,793 on May 20, 2008. Since then, the index has been volatile, stuck in a trough for a longer-than-stipulated period and never reaching the peak number again.

Docking vessels because of the falling BDI and drying up of business maybe a last resort for the shipping companies, feel some agents. “Shutting down of vessel operations is not a solution to the problem; it is just a stop-loss measure for shipping companies. Such decisions may not be taken in haste,” said another shipping agent, who did not want to be named.

Keeping vessels idle also involve a significant cost, said the agent, so the shipping companies will consider that option only when all others had been exhausted.

State-owned Shipping Corporation of India (SCI), the country’s largest shipping company with significant exposure in the bulk segment, would be in a difficult position as most of its 17 bulk vessels have signed spot contracts. “With falling freights, we will have to look at other options to keep vessels deployed and employed on water,” said an official of the company.

Essar Shipping has a 50:50 break-up between the two segments, with long-term contracts varying between two and five years.

“Compared to our peers, we are slightly in a better position as we have internal cargo handled and we are also in long-term contracts. This insulates us from the current sharp fall in Baltic,” said Captain Anoop Sharma, managing director, Essar Shipping.

The tanker segment, which has been a saving grace for companies dealing in bulk, continues to lend support to the business for companies having exposure in both segments. Shipping agents are of the view that SCI’s tanker business would, to some extent, offset the losses made in bulk.

The outlook for the Baltic Dirty Tanker index (for crude oil) and the Baltic Clean Tanker index (for petroleum products) is bullish, as these indices record the peak demand season from October. “The tanker segment is doing reasonably well, as a fall in crude oil prices has encouraged countries to stock the commodity, leading to higher engagement of VLCCs (very large crude carriers),” said Sharma.

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