The recent months' collapse in dry bulk shipping rates has been unprecedented in its severity, the head of the body that organises the key shipping market said yesterday, as a key market index hit its lowest level since January 1987.
Jeremy Penn, chief executive of the Baltic Exchange, said that the Baltic Dry Index was now close to its all-time low in 1986 and conditions were now more extreme.
However, he condemned companies who were trying to escape old contracts struck at the previous higher rates.
The index - which measures average rates in the short-term spot market to charter ships to carry iron ore, coal and other bulk commodities -reached 763 points on Sunday, 93.5 per cent down from the all-time record high of 11,793 points hit on May 20. Rates for the largest ships, known as Capesizes, are down 98.8 per cent from the record $233,988 per day set on June 5 to $2,773 on Sunday.
The collapse, resulting from the financial crisis, and a dispute between Chinese steel mills and Brazilian ore producers and slowing economic demand, has had widespread secondary effects, including bankruptcies among shipowners.
"The violence of the movement, the violence of the correction are unprecedented, particularly in the Capesize market," Penn said. "The sudden and extreme lack of demand for freight has left everybody stunned, I suppose is the best word to use."
The Baltic Exchange hosted an emergency summit last week, attended by 450 people, to address the problems created by the market collapse. The conference criticised some companies' refusal to honour long-term contracts struck at the old, higher level.
Penn said he had no proof of claims that some charterers, in order to escape contractual obligations, were claiming demand for their products had disappeared then chartering ships at the market's new, much lower, levels.
"I would certainly disapprove of anyone who failed to meet their obligations unless they were in dire financial straits," he said.
However, he confirmed the market was considering complaints about some companies that could lead to exchange members being warned about the dangers of dealing with them. He particularly criticised market participants who defaulted, knowing their countries' laws would make them hard to pursue. Many involved in the market believe some Korean and Chinese companies have been the most serious offenders.
"What we regard as unacceptable is simply reneging on contracts and relying on inaccessibility in terms of jurisdiction and geography to protect you," he said.