Shipping industry, the life line of world trade, needs a lifeline. Prone to economic cycles, much of the industry is under water. It needs the wizardry of a Wall Street financial engineer to manufacture a shipping industry related index that can be painted black. All of the Capital Link Maritime Indices are in red. Global recession, weak demand and an over supply of ships have hurt prospects for the shipping industry.
A quick look at the shipping industry news flow would make the investors’ hearts sink. Few days back, members of Transpacific Stabilization Agreement (TSA) announced a plan to raise Asia-US rates, ending a price war that contributed to industry-wide losses. A similar attempt in April failed as lines competed for volumes to avoid costly ship lay-ups amid a roughly 20% drop in Asia-US volumes. Last month, Tufton Oceanic Finance Group, manager of the world’s biggest shipping hedge fund, bought a 50% stake in a fleet owned by failed asset manager Allco Finance Group. On July 28th Hapag-Lloyd, Germany’s largest container-shipping company, secured a €330 million ($468 million) bail-out from its shareholders while it seeks up to €1.75 billion to keep it from sinking altogether. Eastwind Maritime declared bankruptcy in June. There is no end to the negative news supply.
The Baltic Dry Index (BDI), a composite measure of the cost of shipping bulk cargoes such as iron ore and coal, slumped around 35% on August 14 from this year’s high of 4291 on June 3. This is the sharpest fall registered by the index since June 3. Such a drop in BDI is the slowdown of Chinese demand for shipments of coal and iron ore. Cargo volumes in Q1 2009 were down 20.2% year on year; January-May demand was down 26% year on year. Q1 U.S. GDP was -5.7%, unemployment was 8.5%, and consumer confidence was sharply negative. Some 520 ships, about 10% of global container capacity, had been idled as of June 2009.
Moreover, as delivery of new ships has started to happen, it is further impacting the freight rates. For instance, spot rates for shipping a container to Los Angeles from Hong Kong fell below $900 last month. Added to this credit squeeze in the industry continues as two of the biggest shipping banks (RBS and HBOS) are in state-backed rehab.
Charter rates for ships carrying commodities such as iron ore fell a record 92% last year and oil-tanker tariffs dropped 78% as demand weakened and fleets expanded. The cost of a second-hand capesize, the largest ship most commonly used to haul coal and iron ore, plunged 64% to $56 million, from a record $154 million last year, according to Baltic Exchange data. Rents for the vessels fell from $233,988 a day in June 2008 to as low as $2,316 in December.
