In this issue...

Interview
	Michael Drayton
State of the market
	Tanker update
	BIMCO update
	Dry bulk
	S&P
FFAs & FSA
	A new angle on FFAs?
	Oxford Analytica
Ice Class
	The ice ship cometh Will shipping’s ice age start to thaw, asks Clive Woodbridge
	Class societies Providing training for companies – and even competitors – is becoming a way of expanding services and winning new business
Cargo focus
	In short supply Oil demand growth is not enough to allay short-term tanker fears
	Doing business in the United Arab Emirates A thriving economy and well-regulation commercial environment make the United Arab Emirates an increasing popular choice for business
Regional focus
	South America The fast-developing oil and biofuel industries are driving the renewal of South America’s shipbuilding industry, but ports need to keep apace
Port focus
	Rotterdam Construction delays on the Maasvlakte expansion programme have finally been overcome. But will it be enough?
IT
	Getting into the flow A new computer application aims to streamline short sea supply chains and cut congestion throughout Europe
Maritime City
	Dublin Vision Coordination, determination and ambition will ensure Dublin’s success
Insurance news
	Insurance parlance ITIC
	Ship valuations
Out to lunch
	On the river The Baltic watches the Master Shipbroker take on the Thames Waterman in The port of London Challenge

Up, up and away?

BDI reaches record high – and carries on climbing

After the highs seen in the bulk market during April and the first part of May, the summer months initially showed signs of a slowdown. This came as no surprise, as there had been a general consensus that the market was overheated, and that peak rates were unsustainable. Despite abrupt falls in rates on occasion – the average capesize tc rate at one point lost $10,300 in a week – overall rates remained strong. If capesizes were the story of the spring, the summer rise was initially driven by panamaxes and handysizes, with Atlantic routes in particular attracting high rates and a lot of activity. By early August, the BDI had not only recovered, but was once again setting record highs.

Confidence in the dry market for the long term remains high, with tanker specialists TOP tankers buying into the bulk market, and others looking at converting single-hull VLCCs into ore carriers. The derivatives market reflected the overall optimism, with rates remaining high through to 2010, when a large influx of newbuildings is expected to cause the markets to soften. At the time of writing, a panamax FFA for 2008 is priced at $52,000, while capesize FFAs are above $100,000, indicating confidence that 2008 will be another bumper year.

Correction – or pause?

This confidence is something that has emerged since the end of May, where rates for all sizes were heading south. However, period activity remained strong, indicating that charterers felt there was still a strong possibility that rates would rebound. In the capesize sector, a 172,000 dwt was taken for five years from the end of 2008 at $50,000, suggesting confidence that the market will remain high in the long term.

Charterers were holding back on shorter term and spot fixtures in the expectation that the market would continue to fall. The panamax market was particularly quiet, although it picked up in the first week of June, with brokers reporting increased interest in Pacific routes. The handysize market stabilised, while capes continued to soften as availability remained good, and there was in fact a surplus of ships in the far East. Rates for a modern 172,000 dwt vessel on the spot market hovered around $90,000 for an Atlantic round voyage.

The crash – and the bounce

The second and third weeks of June saw what looked like a crash in the capesize market, as the BCI fell from 8,400 to 6,400 in a single week. In Norway, Fearnleys reported its capesize route basket down by $10,300 in a single week Ironically, the driver was heavy delays in the coal and iron ore loading systems – the same factor that pushed rates to record highs less than two months earlier. The sharp fall in cape rates was a reaction to the shortage of stems available, and by the next week, it was clear that it was more of a blip in the market than a long-term correction.

By 28 June the BCI had more than regained its lost ground, although there was considerable volatility until mid-July, when the index began a steady rise. There were reports that charterers were still holding off from long-term period deals in early July, with the expectation that the market had not yet found its level, but these were short-lived. Meanwhile, the panamax index rose sharply from mid-June to mid-July, up from 5,400 to 7,300, with particularly strong interest in the Pacific routes, and maintained this level throughout August. The Supramax index began its rise later than the BCI and BPI, but also showed less volatility: no dramatic rise was seen until 11 July, after which there was a continuous rise throughout August.

Setting records

By mid-July, the BDI was back at the record levels set in May this year. By the end of August, all three Baltic dry indices were at record levels both individually and together. The Supramax index had reached 5,000, the Panamax index 7,620 and the capesize index 10,720, with a time charter average of $127,033. The BDI as a whole was at 7,702, well above the previous record figure of 6,685.

According to Clarkson’s Martin Stopford, shipowners had finally got what they were looking for. However, he warned that “The torrent of cash brings its own problems,” in the form of potential over-ordering. At least till 2010 though, the market consensus seems to be that the future looks bright.

 

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