London, 26 January 2011

The Baltic Exchange's main sea freight index, which tracks rates to ship dry commodities, slid to its lowest in nearly two years on Tuesday as a glut of ships and slow business took their toll. Brokers said news that South Korean dry bulk carrier Korea Line Corp had filed for receivership had also weighed on already weak sentiment.

The index, which gauges the cost of shipping commodities including iron ore, cement, grain, coal and fertiliser, fell 3.94 percent, or 53 points, to 1,292 points and was at its lowest since Feb. 3, 2009.

Korea Line said on Tuesday it had filed for receivership, squeezed by a sharp drop in dry-bulk rates and growing global vessel deliveries ordered before the economic turmoil of 2008, sending shares in shipping companies lower.

"We suggest this could cause ripples through the dry bulk sector as counterparty risk again becomes more probable," Cantor Fitzgerald said in a note. Arctic Securities said it would "send shockwaves through the industry, and remind the market that the dry bulk shipping crisis declared over almost two years ago, perhaps was a premature conclusion to make".

Flooding in Australia, the world's biggest coal exporter, has disrupted shipping activity at a time when the dry bulk industry is already pressured by growing vessel deliveries ordered before the economic turmoil of 2008.

Weather-related issues in Colombia, South Africa, Russia and Indonesia were compounding coal shipment disruptions. "We have other market disturbances like the Indian ore export ban, the Australian floods which are disrupting the usual supply of raw materials and forcing Pacific based ships to ballast into the Atlantic to look for cargoes," said Mark Williams, research manager with broker Braemar Seascope. "That is driving down Atlantic rates as well."

SUPPLY PRESSURES

The Baltic's capesize index fell 3.05 percent, with average daily earnings weaker at $8,002, below the $10,000 level for a ninth session and at their lowest since Dec. 11, 2008. Capesizes typically haul 150,000 tonne cargoes such as iron ore and coal.

Brokers said rates for smaller supramax vessels were expected to fare better in the coming weeks as they were able to diversify their cargoes to other commodities such as sugar and grains. The Baltic's supramax index fell 3.04 percent.

The Baltic's panamax index fell 5.08 percent, with average daily earnings dropping to $12,084, falling for a tenth session. Panamax vessels usually transport 60,000-70,000 tonne cargoes of coal and grains. The Baltic's main index has remained erratic since 2009 because of swings in Chinese demand for iron ore.

INSIDE DRY FREIGHT 26 JANUARY 2011

While there are indications of some vessel cancellations and delays, analysts expect deliveries to gather pace between 2011 and 2012 putting further pressure on rates.

"We have got the supply overhang to work out. I anticipate the market will remain pressured overall," Braemar's Williams said.

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