Baltic Dry Index

[annarborgator]

Thoughts on the recent collapse in prices? Signs of a major slowdown taking place in the next few months, no?

[radbag]

the cost of oil dropping as much as it has on a year-over-year basis has a direct affect on that index...i don't follow it enough to know what it's projecting but i'm sure it's lower and it's movements reflect energy prices.

i think the slowdown we are seeing is affected by many things directly related to the credit crisis we are seeing on wall street...the credit crisis is affecting the dow...the dow is affecting consumer confidence...the consumer confidence is affecting manufacturers and shippers decisions to produce more and to ship more.

i believe the buffets, the gross's, the fidelitys, the blackrocks, the gov'ts of the world will need to acknowledge this time as a time to buy...buy at the lows...start of a new bull run...we see the big boys in buying, consumer confidence picks up and all will be back as good as ever.

[annarborgator]

Agree so long as it's done thoughtfully and at least arguably "right".

[annarborgator]

Continued 'noise in the system' for shipping/freight lines:

FREIGHT rates in the Asia-Europe trades have crashed to record lows as consumer demand continues to crumble, with the crisis compounded by the first signs of customer insolvencies.

A 20 ft container could now be shipped from Hong Kong to Hamburg for as little as $350, excluding surcharges, compared with around $1,400 per teu last summer.

“In all my years in the business, I do not ever remember such difficult trade conditions,” said the trade director of a big Asian line.

“The last two or three weeks have been a nightmare.”

Similar sentiments are being echoed across the industry.

“Has it been as bad as this before? No, not in my 20 years,” the trade manager at another global carrier concurred.

“This is a price war, and we have not seen the bottom yet.”

To make matters worse, lines are coming under pressure to quote all-in prices rather that split ocean rates from currency, bunker and terminal handling surcharges. As rates slide, so they are also starting to incorporate the additional charges that were being levied separately.

The Asia-Europe trades, which were the big moneyspinner for container lines last year as volumes expanded by more than 20% and freight rates soared, have been hit by a slump in high street spending that has pushed year-on-year growth close to zero.

The slowdown coincides with the start of a huge newbuilding delivery programme. Analysts are being forced to re-calculate their forecasts for the year as the supply-demand gap continues to widen.

Adding to the extreme trading conditions are demands on lines from shippers for extended credit as the banking meltdown hits global commerce.

Late payments are on the increase, and anecdotal reports suggest that non-vessel owning carriers are beginning to be hit by bad debts and bankruptcies among their smaller customers. The fear is that this situation will snowball, with lines now keeping their cashflow under intense scrutiny.

The latest downturn concides with the start of the tender season, when lines will negotiate 12-month contracts with their customers that will lock them in for the coming year.

The sense of alarm was apparent at last week’s Box Club meeting when the heads of the world’s biggest container lines held a series of top level meetings, with rumours rife in the Geneva corridors that some newbuilding orders will be cancelled because of the liquidity squeeze.

That does not seem to have happened yet, but ordering activity has come to a virtual standstill as banks demand that owners contribute up to 30% of newbuilding costs from their own pockets.

But ships of 9,000 teu or more will soon dominate the Asia-Europe trades, with smaller vessels no longer able to compete as freights rates collapse.

Zim is withdrawing a series of 4,200 teu units from this trade lane, with one source estimating that the cost per 20 ft slot on a fully laden 9,000 teu is up to $100 less than for a ship of half that capacity. When rates are high, that difference is not so noticeable, but in today’s market, panamaxes are becoming unviable.

Containership lay-ups “are now becoming a distinct possibility” for the coming winter, a broker predicted today. Lines are now shuffling services, redeploying ships and seeking out new markets as they struggle to restore some normality to one of the premier east-west trades. But that might not be enough to prevent some ships from being left idle, several sources predicted.

[annarborgator]

Still following this story:

Fears are growing in the shipping industry over the potentially big losses that could emerge this week on derivatives triggered by the October collapse in rates to charter dry bulk ships.

Since short-term dry bulk charter rates fell 71.9 per cent in October, traders and shipowners have worried that traders might be caught out by the speed and severity of the fall.

Traders in forward freight agreements – derivatives based on short-term charter rates – could owe significant sums if they were betting on a rise in charter rates for ships carrying coal, iron ore and other commodities.

The sector’s Baltic Dry Index of charter rates started the month at 3,025 points and closed on Friday at 851. The 80 per cent of trades made through clearing houses were being settled on Monday, while traders who bought cash-settled products through private transactions, known as over-the-counter trades, have until Friday to settle.

The many shipowners participating in FFA markets could also face losses if their market positions went beyond simply covering the market exposure of their actual ships...

Duncan Dunn, senior director in the futures division of London’s Simpson, Spence & Young shipbrokers, said the market’s rapid fall would have left anyone betting on upward movements needing to make substantial payments....

Market participants’ concerns have been heightened by the possibility of knock-on effects from failures of investors affected by FFA market losses.

If investors facing FFA market losses hand back ships they had chartered early to owners, the ships’ owners will earn considerably less than they expected. They could face problems servicing debt related to the ships.

Michael Bodouroglou, chief executive of Paragon Shipping, a Nasdaq-listed dry bulk shipowner, said that, even if a company had not participated in FFA trading itself, counterparties such as ship charterers might have done so. He said: “Company failures may cause a domino effect,” .

The market uncertainty stems partly from the complex chains of transactions in the market and the lack of clarity about different companies’ FFA trading.

It is widely expected that hedge funds could be particularly badly hit.

However, Philippe van den Abeele, managing director of Castalia Fund Management, a hedge fund specialising in FFA trading, said he expected hedge funds to experience bigger problems over speculative charters of actual ships.

http://www.ft.com/cms/s/0/1529666a-a9db-11dd-958b-000077b07658.html?nclick_check=1

[radbag]

a year or so ago, as prices of energy were rising due to the iraq war, gulf coast natural disasters, venezuelan chit-chat, and opec involvement just to name a few, businesses/homeowners were entering into forward contracts as well trying to cap off and head off spikes in energy prices upwards...oil companies benefited as they entered into year long contracts at prices higher than current market....the risks for the oil companies were minimal as losses down the road were to be negated by the profits on the get go...the businesses/homeowner benefited as there was to be price stability.

fast forward to today with the global financial crisis, mortgage default phenomena, change of guard in the white house and deteriorating global economy just to name a few, businesses/homeowners are overpaying for energy based on those forward contracts they entered into a year ago...oil companies are benefiting because some of those contracts are based on energy prices that are WAY above CURRENT market price...consumers still benefit because of the price stability albeit at way beyond current market price...next contract negotiations should be very interesting.