WINNIPEG — The downtrend in ocean freight rates is showing no sign of letting up as the Baltic Dry Index once again hit fresh historic lows.
The BDI was quoted at 445 points Jan. 7, marking a new low since records began in 1985.
The index was trading higher than 1,200 as recently as the beginning of August but fell below 500 for the first time ever Nov. 20. It had shown some stability in the 470 area over the past three weeks before the recent drop to new lows.
The BDI, which is compiled daily by the London-based Baltic Ex-change, provides an assessment of the price of moving major raw materials by sea, including grain.
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An overcapacity of ships, the slowdown in Chinese demand for building materials, weakness in crude oil and declining commodity prices have been identified as contributing factors to the lower freight rates, according to freight analysts.
In a note to investors, financial services company Stifel Nicolaus recommended investors “stay away from dry bulk” and cautioned that a recovery in the sector likely won’t take place this year, with next year also “in question.”
Meanwhile, the Shanghai International Shipping Institute (SISI) reported that low freight rates and poor demand will likely lead to a large amount of bankruptcies in the sector, with 60 percent of the dry bulk shipping firms that were surveyed said to be struggling with long-term losses.
“The market is extremely depressed, and these conditions are likely to continue in 2016, exacerbating dry bulk firms’ losses, increasing costs and creating obstacles to obtaining financing,” SISI said in a Jan. 5 report.
“This will kick-start a wave of bankruptcies.”
As far as Canadian grain and oilseed exports are concerned, the lower freight rates can even the playing field by lessening the importance of shipping costs in the final price to the buyer.
For example, Australia is closer to China than Vancouver, so lower freight rates lessen the importance of shipping costs in the final price.
