OCEAN FREIGHT RATES

* Contributed by the International Grains Council (http://www.igc.org.uk )

Ocean freight market (May-October 2008)

Dry bulk freight rates dropped sharply from their peaks in May 2008 due to the combined impact of a steep fall in China’s mineral demand, the global financial crisis, the slowing of economic growth and the United States Dollar appreciation.The market started to plunge in June, with rates for larger apesize vessels showing the biggest falls when China reduced its demand for raw materials, having closed a number of industrial facilities in connection with the Olympic Games.The Panamax and Handymax sectors followed, but some regions, notably the Mediterranean and the Black Sea, were less affected due to continued heavy dry bulk demand, including for grains.The downturn accelerated in September and October, coinciding with a general slump in mineral trade as well as shippers’ credit problems.As the market collapsed, owners struggled to do business even at severely discounted rates.Between mid-May and end-October the Baltic Dry Index (BDI) lost 91percent touching the lowest level in six years.During the same period, the IGC Grain Freight Index (GFI),⁹ which does not include Capesize vessels, dropped by 59percent, returning it to a level last recorded at the end of 2006.

In the Panamax sector, rates fell sharply as slowing demand created an oversupply of ships.Business out of the United States Gulf also suffered from the effects of hurricanes.The most commonly quoted transatlantic round voyages fell from USD 100000 to about USD 9000 daily.Pacific voyage rates also fell heavily, although some support came in September from tighter fleet availability and the end of the monsoon season in India.North Pacific roundtrips plunged to around USD 6500 (USD77000) daily, while in the timecharter market, short period rates for four to six months dropped from around USD85000, to USD12500 daily.

Capesize rates registered the steepest falls due to a major drop in demand in China for iron ore.This followed a cut in its steel output and price disputes with shippers in Brazil.Between May and October, the Baltic Exchange’s average of four timecharter rates plummeted by 95percent, to USD 9848 (USD189024) daily, with the major iron ore rate from Brazil to China falling by 87percent, from USD96.75/tonne to USD 12.80/tonne.Rates also dipped sharply in the Handysize/Supramax sector, where there was an oversupply of tonnage and weak demand.However, declines in the Mediterranean, Black Sea and the United States Gulf were less steep due to better cargo availability.Atlantic rates remainedat a substantial premium to those in the Pacific, resulting in increased ballasting of tonnage from the Indian Ocean to the eastern Mediterranean.Rates out of South America remained under pressure because of excess tonnage capacity in the area.In October, a cargo from Brazil to Nigeria was fixed at USD16500 daily, while North Pacific round voyages were quoted at around USD14000 (USD42500) daily.

9.  The GFI distinguishes grain routes from mineral and other dry bulk routes also included in more general dry bulk indices such as the Baltic Dry Index (BDI). The new GFI is composed of 15 major grain routes, representing the main grain trade flows, with five rates from the United States, and two each from Argentina, Australia, Canada, the European Union and the Black Sea. Vessel sizes are adequately represented, with ten Panamax rates and five in the Handysize sector. The GFI is calculated weekly, with the average for the four weeks to 18 May 2005 taken as its base of 6000.