Ocean freight rates may drop in 2009

Huge number of vessels on tap should increase shipping supply and bring rates down

by Dave Hannon -- Purchasing, 6/4/2008 11:56:00 AM

If the number of bulk freight vessels predicted actually hit the water on time next year, freight buyers could see a decline in ocean freight rates sometime next year.

“Rising (bulk ocean freight) rates may continue throughout 2008, but the massive order book will probably facilitate a fall in rates sometime in 2009 or early 2010, and we do not believe cancellations and delays could save the dry bulk market from 2010," says Fearnley Fonds analyst Rikard Vabo in a recent Reuters report.

For example, Mitsui O.S.K. Lines in Tokyo, said in May it planned to build 53 new iron ore carriers to meet rising demand.

Bulk freight carriers have had much more success in recouping record-high fuel costs than other logistics carriers by pushing rates to all-time highs. The Baltic Exchange’s Baltic Dry Index, which measures costs to charter bulk freighters, has climbed consistently in 2008, peaking in late May and again nearing a peak in early June.

But at least one analyst thinks that if demand for iron ore in China slows—as some think it may be due to supply backing up at ports—and more vessels hit the water, then bulk freight rates won’t just decline, they will plummet.

Lazard Capital Markets analyst Urs Dur said in a recent Forbes.com story that over the past six weeks some 60 million tons of ore had sat at Chinese ports. Now it is closing in on 65-70 million tons. Earlier in the year there was between 40-45. Dur says if that goes to an “extraordinary” amount, it would “make freight rates fall off a cliff.”