Volatility continues to dog dry bulk markets. After its record high of 11039 on November 13 last year, the index had plunged to 5615 in January 2008. On Thursday, April 24, it is up 320 points at 9182. According to analysts, the index is gathering steam and in May it could surge further and go back to the high days of November. "It has already started flying. From Wednesday it has been moving up very fast," said a shipping analyst on condition of anonymity.
However, there are others who point out that the market is volatile and its cause for worry. "It is basically directionless. What is happening is that paper market is driving the physical markets - commodity and freight markets," said a senior shipping professional associated a shipping company.
According to him, futures and commodity exchanges are the prime movers today which drive the markets hither and thither. "If the government is thinking of banning trading in futures it is the right step and they should do it fast," he said.
He points out how serious is the issue of papers: "If world GDP is $50 trillion, the derivates traded across the world stand at about $543 trillion, i.e., more than 10 times the world GDP. It is quite scary and precarious."
Most of the leading Indian shipping companies have stakes in bulk shipping. The boom that is happening with infrastructure and other related sectors of the economy is contributing to the increased freight rates and therefore, the way the rates move is very much an important factor affecting company performances.
Even though there are both long term and short term factors for the volatility, how the market or its index would move is anyone's guess.
While flooding in African mines and the after effects of farmers' strike in Argentina, for example, could affect shipping rates on a shorter run, Asian growth and American recession will call the shots long term.
"Everybody is talking about recession, but the commodity prices are not coming down. So what kind of recession is this when the commodity prices are going up?" wondered one Indian shipper.
Many international analysts are divided over the impact of the possible influx of new cargo ships. According to rough estimates, the market is expected to see most the nearly 9,000 ships that are under construction worldwide to enter trade in 2009 and 2010, leading to fall in bulk shipping rates. On the other hand, many believe that delays in their delivery schedules would help keep bulk shipping rates relatively high.
At the ship operation side, however, there is another story. "Merely comparing rate increases, which is what is everybody is doing, is not the correct thing to do in a situation when there are all round increases in major input costs," said shipping company official.
The increase in oil prices, bunker rates, salaries, etc, is eating up a part of the profit margin of shipowners. Therefore, increase in freight rates should be looked at in a scenario of major input costs in the operations of ships," said a shipowner representative.
Given the way the rates are fluctuating nobody is willing to talk about the kind of market one would have post August. "There are so many ifs and buts. There are so many tangibles. Conflicts arising out of various developments in countries like Iraq, USA make it difficult to predict beyond August. Earlier many people feared that world economy would collapse but nothing of that sort happened," he added.
According to the shipping executive, the year before last tanker market had shown very good increase and last year it was the turn of bulk cargo market.
"In such a scenario, one could look only up to August. However, I feel that the market have some kind of strength to stabilise. If not growth, some kind of stability may come post August. We may not maintain the kind of GDP growth that we have witnessed during the last two years. But it would not earlier years. Though it will have fall far back than its own impact on cargo movements, it may not cut terribly to the profit margins," he said.
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