Baltic Dry Index on Course for Lowest Monthly Average Since 1986

Feb 28, 2012 -- The Baltic Dry Index (BDIY), a measure of commodity shipping costs, is on course for its lowest monthly average in more than 25 years as an oversupply of vessels keeps hire costs below break-even levels.

The index has averaged about 698 so far this month, according to the London-based Baltic Exchange. It’s closing in on the worst performance since the average level of about 587 in August 1986, figures compiled by Bloomberg show. Today the measure rose for a third session, led by higher rates for Capesize ships that carry iron ore.

The gauge has plunged 58 percent this year after China’s New Year holiday closed markets in the country for a week in January, sapping cargo demand and worsening a glut of dry-bulk commodity carriers. Earnings for the global fleet of more than 9,000 ships reached all-time lows on some routes this month as new-vessel numbers increased amid a seasonal slump in demand.

"Pessimism is running rampant,” Cantor Fitzgerald LP said in an e-mailed report. Earnings for Capesizes and Panamaxes, the two largest dry-bulk vessel types, are below cash break-even levels and deteriorating further, the New York-based investment bank said.

The index gained 1.7 percent to 730 as Capesize hire costs climbed to the highest level since Jan. 25, figures from the exchange showed. Average daily Capesize (BCAVRT) rents rose 3.9 percent to $5,921, still only 33 percent of the $18,000 the vessels must earn to break even, according to Oslo-based investment bank Pareto Securities AS.

$12,000 a Day

More owners and operators were agreeing to hire out vessels for periods of four to six months rather than accept lower single-voyage rates, Cantor Fitzgerald said. Costs to charter Capesizes and Panamaxes for single voyages slid 11 percent last week to respective levels of $3,167 and $4,736, according to its calculations. Hiring a Capesize for up to six months costs about $12,000 daily, it said.

"This is a strong indicator that owners are beginning to capitulate in the face of persistent spot earnings well below cash breakeven,” the bank said.

Dry-bulk freight rates will remain at loss-making levels at least until 2013, with a record number of new vessels scheduled to enter service this year, Nomura Equity Research said in a report last week.

Average daily rents for Panamaxes, the largest ships to navigate the Panama Canal, slid 0.3 percent to $6,683, according to the exchange, extending last week’s 12 percent retreat. Charter costs for the ships in the Atlantic dropped 1.1 percent to $4,438, remaining at the lowest level since January 2009.

Supramax (BSRATCR) vessels that are about 25 percent smaller than Panamaxes gained 2.5 percent to $7,090. Handysizes, the smallest ships in the index, rose 1 percent to $6,042.