August rates decline

August 2008 saw a distinct tendency to a decline in the market of bulk tonnage. Baltic Freight Index for Panamax vessels fell by 1220 points (–16.3%), Super Handymax – by 638 points (–13.2%) and Handysize – by 381 points (–15.0%). The decrease of freight rates indexes touched, though unequally, all the sectors and directions of dry bulk transportation.

Bulk index

Bulk index for Continent-Far East fell by $6500-8000 per day (-13-16%), that for USG– Continent fell by almost $15000 per day (18.4%), while in the Black Sea it declined by less than $4000 per day (5.7%).

Level of rates

The gap between time-charter rates in the Atlantic and Pacific Oceans for Panamax and Handymax was still considerable in August, unlike that for Handysize.

One of the factors resulting in excess of bulk tonnage in August was a considerable decrease of demurrage in the ports of loading/unloading.

Coasters and sea-and-river going vessels

From the Baltic Sea to Portugal, both coasters and sea-and-river going vessels had a calm period in August. The demand was still higher than supply which effected the rates’ level. Some ship owners traditionally operating fleet at the Continent had to mover their tonnage to other regions or to accept the proposed rates. However, in the second half of the month the market gradually stabilized in particularly due to grain shipment commenced in Germany.

Brokers say shipowners of the East Mediterranean states used sold many coasters with deadweight of 1,500-2,000 tonnes (mainly those over 25 y.o.) to avoid problems with control authorities. Thus autumn may encounter lack of this type of tonnage in the Baltic Sea region.

In August 2008, time-charter equivalent calculated by NORBROKER for coasters was as follows:

Excess tonnage was typical for the entire Mediterranean region, especially for its western part.

Black Sea region

Tonnage inflow to the region of the Black Sea resulted in excess of vessels in this area and consequent decline of rates. Tonnage excess in the region is aggravated due to typically for summer low sales of coal, steel and fertilizers and price correction. Besides tonnage excess, the problem with rolling stock, multiple conventions at Russian and Ukrainian railways leading to Black sea ports and dock workers’ strike in Tuapse complicated the situation in the region.

Sea of Azov

Unlike Black Sea Basin, Russian ports of the Sea of Azov accept mainly sea-and-river going vessels with deadweight of up to 5,000 tonnes. Considerable inflow of grain caused the increase of rates for sea-and-river going vessels by $5-8 per tonne in the mid August.

Period-charter is in demand again after a break at the market of coastal non-regional transportation. As a rule, time-charter covers period from 3 to 6 weeks though some charterers wish to get vessels for a year or more (two or even 3 years). Brokers attribute this to a desire to get cheap tonnage at the lowest market point in order to have a high margin at its highest point in autumn.

Major factor which had negative impact on the tonnage market situation as regards coastal and regional transportation in August 2008 are as follows:

? decrease of prices for bunker fuel;

? decrease of prices for certain goods like steel, scrap metal, grain etc.;

? problems in sale of grain of new yield due to its low quality and low purchase prices;

? bulker tonnage market decline;

? consolidation of cargo consignments to 15,000-20,000 (for Handysize vessels) for the decrease of transport component (contrary to a situation two months ago);

? Olympic Games in Peking and summer holidays in Europe and other countries.

Forecast for tonnage market development

When speaking about the decline of bulk tonnage in late summer 2008 one should remember the market situation before the decline. Even today’s rates are higher than average rates of many recent years. For many categoriesof bulk tonnage, the rates per 1dwt/day are still above $1. However, bulk carriers of over 25-30 y.o. encounter difficulties and they are first candidates for taking out of operation if the tendency to rate decrease is preserved.

This year the market did not see an upsurge typical for the second half of August.

Besides an enormous backlog of orders for newbuildings (almost half of the existing fleet as of early August 2008), decline of economic growth rates in the world had a negative effect on the freight market situation. According to experts of International Chamber of Commerce /InstituteGlobal Economics Research, global index of economic development fell from 81.4 points in the second quarter of 2008 to 73.4 points in the third quarter (the lowest from late 2001). of

The hope to avoid collapse of freight market is still connected with China, India and other fast-growing economies. A considerable support of the market is also seen in fast-growing export of coal from the USA, which is expected to reach 80 million tonnes in 2008 against 50 million tonnes a couple of years ago. By late 2009/2010 export of coal from the USA is expected to reach 100 million tonnes (mainly to Belgium, Netherlands, Great Britain, France, Spain, Poland and Romania.

Positive expectations are also related to record yield of corn and soy in southern states of the USA which are to be exported from the Gulf of Mexico and Mississippi by Panamax and Handymax bulk carriers.

Typical summer decline is also seen in the market of coasters and sea-and-river going vessels. However, the majority of maritime analysts think its lowest point was in the mid August though it was quite high as compared with similar periods of the previous years. Moreover, unlike the market of bulk tonnage there are significant prerequisites here for market consolidation up to Christmas due to Ramadan started on September 01, 2008 as well as to certain specificity of the current grain season. Experts say the market growth will not be as fast and considerable as ship owners would wish.

Valery Voinichenko, Ph.D. in Economics

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