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Dry Bulk Freight Rates Still Higher Than Last Year, Despite Recent Falls
Source:dry bulk shipping

The dry bulk market's recovery will be a long and arduous road with a few bumps on the way. We are currently amid such bumps as it turns out, as the latest consecutive drops of the dry bulk freight market, evidenced by the course of the Baltic Dry Index (BDI), have shaken the confidence in said recovery. The BDI has marked 22 days of consecutive losses, having lost as much as 520 points from its peak of 1,338 points noted on the 29th of March 2017.

In its latest weekly report, Allied Shipbroking noted that "it is not so much the intensity of the drop as it is the number of days of decreases noted in the general index and the fact that this has taken place during a period of the year where we typically see a at least a slight firming of the market which is primarily driven by seasonal flows such as those from grain cargoes. There is also the fact that optimism had been overinflated by the sharp rise in the index during March".

According to Allied's Head of Market Research & Asset Valuations, Mr. George Lazaridis, "the reality that has hit is one that was always visible to some extent in the details. The truth of the matter is that we have only just started to see a re-balancing of sorts in the demand and supply and given that trade growth is still sluggish, the improvement seems to be driven more so by the slow fleet growth. As such, what makes sense is that the recovery will come in slow steps, with freight rates gradually improving over several years, rather than skyrocketing in a matter of months".

Lazaridis added that "what the main issue is, is that many fear that even the possibility of a slow-paced growth is faltering. Taking a comparative look of the BDI trend this year against what was being noted last year, it becomes clear that a significant improvement has been made even when looking at the level the index stands at today. We are currently at a level which is higher than anything we witnessed in the first 9 months of 2016 or the first 5 months of 2015. Of course, when taking into consideration that these were also the most difficult months noted in the history of the dry bulk market it's not exactly something to cheer about when you are saying that you are at a better state now. At the same time given that the summer months are typically subdued there is also fears that the current downward cycle could continue over the next 2-3 months, before finding some footing in the Autumn period.

Allied's analyst mentioned though, that "taking a view that the recent drop might be propelled to some degree by traders which are holding back volumes due to commodity prices, we may well see a fair flow of cargoes coming through during the summer months as well, something which if nothing else should help keep freight levels buoyant. In any case, it appears as though the focus should be that the market has outperformed both 2015 and 2016 to date and that could be taken as a good indication that we are still on a recovery path albeit a more gradual one", Lazaridis concluded.

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