Charterers' wait-and-watch strategy finally yields results

The market has continued its fall from our last report, two weeks ago. The fall has not been dramatic, it just loses a couple of hundred dollars a day from the basket of Capesize rates and ended the week at about the $52,000 per day level.

Of course the tonnage supply has increased over the last months with no large bulk carriers being sold for scrap, while any number of new vessels have been delivered from the shipyards.

Of course the amount of cargo being transported around the globe has increased as the world's economy has grown. The ton/miles equation though has not grown to the same extent.
The delivered price of lower value cargoes such as iron ore increases by a huge percentage when the freight market is high.

It makes it an attractive proposition therefore for the buyers to source their raw material from closer at hand, Australia say, rather than Brazil. So although imports of iron ore have grown by 48 per cent into China, if you only have to go down the road to fetch it, you do not need many extra ships.

Anyway, this year, Capesize rates have continued to fall - a slide which only started in mid-January, but although there were often times when the glad shout rang out, "freight rates have bottomed out", this was never the case.

The basket of four Capesize timecharter trip rates which peaked at $95,000 per day early in the New Year, passed $52,000 daily last week in a downwards direction.

Panamax

It has been a bit of a roller-coaster ride over the last two weeks for Panamax vessels. During the first part of the period under review, the market strengthened in all major trades.

While the grain trades have disappointed in respect of tonnage shifted so far this season, the mineral trades more than compensated.

Owners, who were showing signs of anxiety as to where they were going to find employment, found miraculously a trade to fit their position.

Charterers were now looking at a rising market again. One made a rather clumsy attempt to pull the rates down by reletting one of their own vessels at a ridiculously low rate. This was quickly spotted and everything in the garden looked rosy.

There was a fair amount of short period activity for Far East delivery. Time-charter rates improved by around $2,000 per day.

This again underlined a general feeling of optimism that the market was heading 'north'.

Some commentators were basking in thoughts of times past. US Gulf to Japan rates for May 2003 were around $34 per ton. This they compared with the $63 per ton currently on the table. Such euphoria was short lived. It was reported from China that a cargo of soya beans being discharged at Xiamin was contaminated.

This was followed by suggestions that all soya bean import contracts had been cancelled by the Chinese authorities.

At the beginning of the week, both the Atlantic and the Pacific markets looked fairly steady.
By midweek, sentiment was taking a pummelling. With pessimism affecting the grain market and with charterers holding back any firm enquiries in the mineral markets, rates began to tumble.

Where rates in the Far East had been about $27,000 per day the week before, these fell to about $20,000. They fell from about $31,000 per day to about $24,000 for trans-Pacific employment.

A similar pattern emerged in the Atlantic as rates fell below $30,000 per day and will probably open this week at around the $25,000 level.

This report may be about the dry-cargo market, but all markets are inextricably linked. Any increase in crude oil prices leads to an increase in bunker prices and this affects economies in the dry bulk market as much as the tanker side of things. With crude oil stubbornly staying above $40 per barrel, countries are fighting for their share.

The next Opec meeting takes place in June. Therefore the next month will be crucial to the shipping market.

Handysize/Handymax

Size and position seems to have been the guiding factors as to whether ship-owners would see rates remaining steady but strong or slowly weakening.

There have also been mixed signals which have confused the market. For example, a 60-day time-charter fixture for a 56,000 deadweight bulker at $30,000 per day was concluded for trading in the Far East.

At the same time a slightly smaller bulker was fixed for a timecharter trip trans-Pacific at $24,000 per day. The expected duration of the latter being about 50 days.

Although the market in the Pacific has steadied a little more than in the Atlantic, levels achieved in the Atlantic trades have remained much higher.

From North West Europe, a 42,000 dwt vessel has been fixed at $35,500 per day giving delivery on the Continent and redelivery in Taiwan.

Longer periods of employment have seen rates placed under much more downwards pressure.
This leads observers to conclude that rates will drift lower over the summer.

Smaller Handysize tonnage continues to withstand such downward pressure on rates.

A 24,000 dwt bulker was concluded at $18,000 per day giving delivery in Indonesia for a trip via Western Australia with redelivery within the Singapore-Japan range. This is a good level for such prompt delivery.

The same applies for South African business with a slightly larger, more modern vessel obtaining $24,000 per day for a trip to the Mediterranean. The western side of the Atlantic continues to disappoint however. Rates from the US Gulf and from South America have been discouraging.

Sale and purchase

The downturn in most markets has begun to be reflected in the second hand market. Tonnage which had previously been scarce, is now beginning to appear as possibly available.

There is the old shipping adage of "sell while the market is high". This is in conflict with the other adage of "don't sell while the market is falling". We need the market to level out in all areas for both of these sayings to be appropriate.

In the demolition sector, prices paid in China have been falling. This is ahead of rumours that three tankers sold to Chinese scrap merchants had been turned away. This is not unrelated to the Chinese government's recent announcement that they were to slow the pace of the importation of raw materials. The sale of ships for scrap is also covered by this edict.

For owners looking at a beach in Bangladesh as the final resting place for one of their beloved ships, a two-tier market has emerged.

The Bangladesh's much heralded budget is due to be announced in June. It has been widely reported that a 15 per cent surcharge or import duty will be levied on ships sold for scrap in that country.

Several vessels have therefore been sold on both a pre-budget and a post-budget level. For example a 1979 built bulk carrier of 12,000 ldt has been fixed with delivery 'pre-budget' at a price of $410 per ldt and $390 per ldt for post-budget delivery.

India is not yet in a position to challenge such levels and while some are saying that the Bangladesh market is now at maximum capacity, the outcome of this budget may be the key factor in determining the sho