Fall in baltic dry index worrisome for shipping cos

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Fall in baltic dry index worrisome for shipping cos

The Baltic Dry Index (BDI), a measure of costs for major shipping commodities on Friday fell to its lowest level in more than 25 years as sluggish demand prompted ship owners to not deploy vessels

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The Baltic Dry Index (BDI), a measure of costs for major shipping commodities on Friday fell to its lowest level in more than 25 years as sluggish demand prompted ship owners to not deploy vessels in the sea. The situation indicates that the worst is still not over for the shipping industry, say analysts.

According to the data released by Baltic and International Maritime council, the BDI plunged to an all time low of 647 points,then the previous low of 663 points recorded in 2008 amid a global financial crisis.

In the past 26 years since the Baltic index came into being, the index had never slipped below 650 points and the current fall in the Baltic has raised serious concerns among shipping companies.

A slump in BDI directly correlates to a decline in time charter rates of shipping companies. Indian shipping companies like Shipping Corporation of India , Mercator Lines and GE Shipping might see a decline in their charter rates for dry bulk, which will be closer to their operating cost, thus impacting their margins.

Analysts say the recent fall in the freight rates is due demand supply gap in the market. This year alone about 95 million dead weight tonnage will be added to the global shipping industry. This growth in fleet is expected to be around 10% more than the last year. However, the demand is growing only by a meager 4-5%.

Another reason for a fall in demand for vessels is due to China declaring a week-long holiday for the lunar new year celebrations starting from January 23 to January 28, and the surplus iron ore inventory in the country has reduced the demand for iron ore, affecting the struggling global shipping sector.  In addition, the adverse weather conditions in Brazil and two tropical cyclones in Australia have also affected iron ore shipments and port operations.

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