Freight rates are poised to rise after tumbling to a two-year low as owners of ships hauling coal and iron ore scrap the most vessels in at least 28 years, according to a Bloomberg report.
The report cited Clarkson Plc, the world’s biggest shipbroker, saying a total of 38 capesizes, carriers three times the size of the Statue of Liberty, will be demolished this year.
Owners of older vessels may sell them for scrap because earnings from single-voyage charters were slashed by a four-week, 71% slump in rates. The most demolitions since Clarkson’s records begin in 1983 may help reduce a glut as an estimated 200 new capesizes, spanning about 35 miles laid end- to-end, leave shipyards this year, a Bloomberg survey of eight fund managers and analysts last month showed.
Charter costs should average USD$22,000 in 2011, almost four times today’s rate of $5,724, according to Philippe van den Abeele, the managing director of Castalia Fund Management (U.K.) Ltd., the London- based sub-adviser to a hedge fund trading shipping derivatives.
“From where we are now I don’t see much downside,” he said. “People are depressed, they think it’s the end of the world in dry cargo shipping, but they’re pushing it too far.” Van den Abeele’s forecast in July for a rebound was followed by rates that tripled within three months.
Van den Abeele’s forecast for this year’s average rate is at least 22% higher than any of the quarterly forward freight agreements being traded for 2011, according to data from the Baltic Exchange in London. The accords, traded by brokers, allow investors to hedge or bet on the future cost of shipping.
Companies ordered too many ships in 2007 and 2008, when daily income averaged about $111,000. Rates reached a record $233,988 in June 2008 before plunging 99% over the next six months to $2,316, according to the Baltic Exchange, which publishes assessments for more than 50 maritime routes.
The glut is also hurting profits in the oil-tanker market, where owners’ daily returns on the benchmark route from Saudi Arabia to Japan dropped 89% to $7,973 in 12 months. For container ships transporting goods in boxes, rates more than doubled in the past year as trade rebounded with the global economy, a Hamburg Shipbrokers’ Association index shows.
Scrap values are at their highest since 2008, with a capesize worth about $10 million at current steel prices, said Jamie Dalzell, sales and purchasing manager in Shanghai for Global Marketing Systems Inc. The company, based in Cumberland, Maryland, is the world’s largest cash buyer of obsolete vessels. Cash buyers purchase vessels from owners and deliver them to recycling yards.
Rates out of Asia plunged after the worst floods in a half century in Queensland, Australia, which supplies about half the world’s seaborne supply of coal used in steelmaking. BHP Billiton Ltd., the world’s largest mining company, and London- based Rio Tinto Group, the second-biggest iron-ore exporter, declared force majeure, a legal clause allowing them to stop contracted sales.
Owners are also reacting to the slump by anchoring more ships and slowing down those carrying cargoes to conserve fuel. An average of 233 capesizes were anchored globally in the week to Jan. 30, compared with 142 at the end of October, based on data collected by AISLive and compiled by Bloomberg. The average speed of the bulk carrier fleet fell to 8.81 knots, from 9.56 knots, over the same period, the data show.
“One can see charterers being spoiled for choice, and they will prefer newer ships with anything over 20 years old marginalized and hard to employ,” said HSBC’s Prentis. “This should be a record year for capesize scrapping.”
-- Source Bloomberg