Credit crunch sinks ocean freight
Extremely low shipping rates are not very useful if shippers can't secure the lines of credit to purchase the materials and have them shipped
By David Hannon -- Purchasing, 12/11/2008 7:00:00 AM
Extremely low shipping rates are not very useful if shippers can't secure the lines of credit to purchase the materials and have them shipped.
By mid-November, the Baltic Dry Index, which tracks dry bulk shipping rates, had dropped to 826. In May it was at an all-time high above 11,000. But as Jefferies & Co. analyst Douglas Mavrinac told the Associated Press, many buyers of bulk ocean freight, such as power plants and steel producers, are not able to take advantage of those low freight rates because they cannot secure letters of credit they need.
"That doesn't imply that global demand is slowing," Mavrinac said. "It implies that global trade is stalling—ships are idling. "
At the same time, shipping firms that are concerned about their liquidity are cancelling orders for new vessels. Most recently, Genco Shipping and Trading canceled a $530 million order for six new vessels, losing a deposit of $53 million in the process. In a statement Genco CFO John Wobensmith said, "While Genco was prepared to take delivery of the six drybulk newbuildings that we agreed to acquire in June, management has made a proactive decision to forego the vessels."
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