Along with the stock, capital and housing markets, the global shipping industry is starting to feel the domino effect of the financial crisis that originated in the United States. With money markets seizing up, traders and shippers are struggling like other businesses to gain access to credit.
Prices for moving sea-cargo containers have tumbled to 10-year lows as US and
The Baltic Dry Index (BDI), the most closely watched measure of shipping costs for commodities, has plummeted more than 90% from its peak at 11,793 in May, caused by the sharp fall in demand for cargoes.
The index tracking transport costs on international trade routes fell 47 points, or 4.1%, to 1,102 points on Friday, the 15th consecutive session of declines and its lowest level since September 2002.
Khalid Hashim, managing director of SET-listed Precious Shipping Plc (PSL), said the simple explanation for the collapse of the index was the freeze in financial markets in response to the global credit crunch.
"We have heard that American banks are not accepting letters of credit from some [foreign] banks, resulting in exports out of the US falling quickly and exacerbating the perilous state of cargo flows," he said.
Not that long ago, he said, the dry bulk sector was hopeful it would see market activity recover by the end of next month. Businesses believed that demand in emerging markets was still strong and the drop in Chinese iron ore and coal imports would affect cargo demand only temporarily.
However, the extent of the global problems has turned out to be far greater than the cargo industry's original perceptions.
"I also think such situations [as the BDI decline] will take at least a couple of months to reverse to normal. The disruptions will continue before trade finance and cargo flows get back to normal levels," Mr Hashim said.
A.P. Moeller-Maersk A/S, the owner of the world's largest container line, has been prompted to announce a cut of shipping capacity between Asia and Europe by 10% as the global economic meltdown slows demand growth.
Prices for moving sea-cargo containers have tumbled to 10-year lows as US and European consumers reduce purchases from Asean, while shippers have added vessels, resulting in steadily declining estimates for Asia-Europe market freight rates.
Neptune Orient Lines Ltd, Southeast Asia's largest shipping company, has also announced plans to slash capacity on the Europe route by 25%.
Tisco Securities analyst Thapana Phanich agreed that sentiment was bearish for the dry bulk sector and that a cyclical downturn is imminent.
Slowing import demand for coal and iron ore by China remains a factor, according to Mr Thapana, who forecasts that the BDI will average around 3,000 next year and decline 2,000 in 2010.
As a result, he said, shares of dry-bulk shippers such as PSL were also likely to be pressured by the new supply of dry bulk carriers over the next two years.
Although the global credit crunch has reduced orders for new ships, a large number of orders for dry bulk carriers that were placed last year are very likely to be fulfilled in 2009 after delays this year.
Tisco forecasts vessel supply growth of 6.5% this year, 10% next year and 15% in 2010, though the pressure of a vessel surplus could be eased by scrapping some ships that have neared the end of their life cycles.
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