DRY CARGO SHIP RATES FALL WITH DEMAND

DRY CARGO SHIP RATES FALL WITH DEMAND

A vacuum in demand for dry cargo vessels has pushed freight rates sharply lower over the past month, with the downturn accelerating this week.

The Baltic Freight Index - which measures the cost of shipping bulk cargoes such as grain, coal and iron ore on 13 key routes - fell by 18 points Wednesday to 1475.0. This followed a 26-point decline Tuesday.Only a month ago, the index reached a record high of 1648.5, having rallied almost 400 points since the beginning of the year.

Rates for U.S. grain shipments from the U.S. Gulf to Japan - one of the major routes included on the index - have dropped from $28 a ton about a month ago to $25.50 now, according to charter market sources in New York. Similar drops have been recorded for grain shipments from the Gulf to Northern Europe and from the Pacific Northwest to Japan.

It's a function of supply and demand, said one industry observer in New York.

London shipbrokers attribute the downturn largely to a temporary withdrawal of Japanese charterers from the market. The Japanese were active market participants in the first three months of the year, barely able to import sufficient coal to meet spiraling domestic steel production requirements.

But with the start of Japan's new financial year at the beginning of April, chartering activity has slowed down while new contracts are negotiated, contributing to the drop in freight rates.

Shipowners make the same mistake every year, one owner admitted.

Also weighing on the market is the lateness of the Argentine grain crop, with producers holding out for better prices, while a general increase in ship steaming speeds has reduced voyage times and added to surplus shipping tonnage for immediate availability.

Nevertheless, shipbrokers say Argentina cannot afford to hold out for much longer before commencing shipments, while strong demand for coal and iron ore

from Japan, Germany and elsewhere indicate that the underlying tone of the market remains sound.

The general feeling within the London shipping community is that the dry cargo market is suffering from price manipulation and that rates are likely to recover strongly from mid to late May, one broker predicted.

Nevertheless, on the Baltic International Freight Futures Exchange, the April contract was again under pressure Wednesday, closing at 1418.5 compared with Tuesday's close of 1439.0 in active trading.