Cargo costs set record as world runs short of ships

Timesonline

Carl Mortished, International Business Editor

Cargo freight rates are soaring as the world runs out of ships to satisfy the extraordinary craving for fuel, grain and metals.

The Baltic Exchange’s Dry Cargo Index reached a record high of 6,230 points yesterday as the market responded to the shortage by propelling the cost of shipping to record levels. The Dry Cargo Index’s previous peak was at 6,208 points in December 2004.

The daily rate for the largest vessels, known as capesize – capable of carrying 172,000 tonnes of cargo – reached $106,289 yesterday, while panamax rates, for vessels that can carry up to 74,000 tonnes, reached $47,100 a day.

Jeremy Penn, chief executive of the Baltic Exchange, said that the continuing strength of Chinese demand for coal and iron ore was propelling rates higher. The China factor, “coupled with delays in Australian ports and a weak dollar, have given the freight markets a boost”, Mr Penn said.

China’s increasing impact on the commodity markets was having knock-on effects on third countries. Japan and South Korea are now sourcing raw materials from countries farther away, such as Australia, Brazil and Indonesia, leading to longer sea voyages and leaving fewer ships available for charter.

Increasing volatility in the underlying physical market for vessels is having the additional effect of driving up volumes in the recently created derivatives market. The derivatives market uses Baltic Exchange indices to settle future contracts.

Until the recent surge in activity, the Dry Cargo Index had traded in a range between 500 and 2,500 points from 1985 to 2003.