Shipping rates may sail smooth

Commodity shipping and tanker rates, which touched record highs last year, are expected to remain firm this year as well.

On the dry bulk side, which includes shipping coal, iron ore, cement and grains, London-based Baltic Exchange's Baltic Dry Index (BDI), an indicator of commodity shipping rates, is at an all-time high and analysts remain bullish on the index for this year, too.

Ole Slorer and Darren Gacicia, analysts with Morgan Stanley Research, in their December 2007 report said the extraordinary conditions of 2007 were not expected to be repeated, but the next two years would still be solid by historical standards.

Imports by developing countries like China and India are expected to be the biggest driver for dry bulk rates. India's coal requirements are set to increase with the ultra mega power plants planned. On the other hand, China's growing steel industry now has to look beyond India for its iron ore imports and South America is the only next option.

"The key for freight rates is not only the quantum of cargo but also from where it is coming and the distance it is travelling," reasoned Anjali Kumar, company spokesperson, Great Eastern Shipping.

Meanwhile, BDI, which breached the 11,000 mark in December 2007, fell 1.51% to 8,756 on January 3, 2008 - the lowest in over three months.

Experts look at it as a correction, attributed partly to lower iron ore imports by Chinese steelmakers. They maintain, however, that the indices cannot fall beyond a point (~8,000-9,000) and will eventually rule at a healthy level.