Rates for dry-bulk freight, a leading indicator for global economic activity, have been falling for 10 straight days.
With shipowners desperate for cargo, they're willing to take lower rates to keep their ships moving. Rates for dry-bulk freight, a leading indicator for global economic activity, have been falling for 10 straight days, reflecting a surplus of ships and falling prices for steel. On Tuesday the Baltic Dry Index, which is managed by the Baltic Exchange in London and measures dry bulk shipping rates on 40 routes across the world, slid 15 points, to 1,758. That is still above its low near 700 in December, but the slide from 2,298 on March 10 is a negative sign, even though business is being done at reduced prices.
Oppenheimer analyst Scott Burk said that when cargoes move in an environment of decreasing rates it implies a surplus of ships. "If there are a lot of cargoes shipowners expect to come on the market or too few ships they'd probably hold out for higher rates," Burk said. The current state of affairs signals that shipowners are willing to accept low rates out of desperation.
But some owners may feel that as long as charter rates are above the breakeven mark, it makes sense to keep their ships moving. On Tuesday, the rate for Capesize vessels, the largest size and the one often used in the important iron and steel industries, was$19,909, down from $114,152 a year ago.
Burk said DryShips has the highest cash break even cost in the industry with its Capesize clocking in at $14,500 per day, due to its high levels of debt, interest, and administrative costs. Meanwhile, Excel Maritime Carriers Capesize break even costs are $13,000 per day, OceanFreight is just over $12,000, Eagle Bulk Shipping is just under $12,000 as is Genco Shipping and Trading, FreeSeas is just under $11,000 per day, and Diana Shipping is the lowest, $8,900.
Dahlman Rose analyst Omar Nokta said that the market for Capesize ships has been steady due to iron ore being shipped from Australia, but could have been much stronger if steel prices were more robust.
China steel rebar clocked in at $492.13 per ton on Tuesday, down from $698.90 a year ago.
Meanwhile, Aries Maritime Transport reported a much wider loss than anticipated in the fourth quarter, due to an impairment charge on the value of its three container vessels.
The company reported a net loss for the quarter of $42.0 million, or $1.46 per share, down from a loss of $7.1 million, or 25 cents per share, in the prior year. Results for the fourth quarter included a $30.1 million non-cash impairment charge on the value of Aries' three container vessels as well as a $5.8 million non-cash loss from the change in the fair value of derivatives. Results for the prior year included a $2.5 million non-cash loss from the change in the fair value of derivatives.