Massive Warnings From Shippers On Their Drying Baltic Dry Index

Ok, the Baltic Dry Index has plunged again. The index is now at 851 points!

Now this is not what I want to post today.

Susan Lee has written a decent write on the Baltic Dry Index on Forbes the very last two passages summarizes why the Index is so important.

• A major factor behind the run-up was, of course, the commodity bubble. And the Baldry proved its worth as a leading indicator by turning down two months before that bubble burst. Plus, I would also point out, the Baldry forecast the slowing growth in China. Chinese demand for raw materials from the West--including a ravenous appetite for coal and iron ore--has been fierce. Some say it's been a critical driver of the Baldry. So the announcement a few weeks ago that growth in China has slowed wasn't news to those who've been following the six-month collapse of the Baltic Dry Index.
  
  Simply put, if you're in the market for a quick and efficient way to spot the bottom of the global recession, watching the Baltic Dry is a very good bet.

Source: http://www.forbes.com/opinions/2008/10/30/baldry-baltic-index-oped-cx_sl_1031lee.html

And for the following two articles from two shipping giants highlights how dire the situation is.

• Oct. 31 (Bloomberg) -- Goldenport Holdings Plc, a U.K-listed shipowner, fell by a record amount in London trading after saying trade in commodity shipping has ``virtually halted.''
  
  Goldenport fell as much as 21 percent to 88 pence before closing at 93 pence, valuing the company at 65 million pounds ($105 million). The stock has plunged 78 percent this year, compared with a 52 percent drop in the nine-member FTSE All-Share Industrial Transportation Index. The shares started trading in March 2006.
  
  ``Activity in the dry-bulk segment has virtually halted, with minimal trade taking place globally,'' Chief Executive Officer Paris Dragnis said in a statement today. Future leases will probably earn ``significantly lower rates.''
  
  The company, based in Majuro, Marshall Islands, said customers who hired its vessels will likely return them as soon as they can, cutting contracted sales for the three years to 2010 by 8 percent to $324 million. One of its customers is Britannia Bulk Holdings Inc., which on Oct. 29 said its lenders asked for immediate repayment of $158.7 million outstanding on a loan.
  
  The Baltic Dry Index, a measure of freight costs on international trade routes, has dropped 93 percent since May amid an iron-ore price dispute between China and Brazil and a freeze in the supply of credit to purchase cargoes.
  
  The shipping line said the Achim, a container ship, was returned by a customer a month earlier than ``initially agreed,'' causing Goldenport to incur $700,000 in fuel and port fees. The ship was sold for demolition.
  
  ``I would like them to clarify what risks they have under each vessel,'' said Alex Chan, a London-based analyst at NBG International Ltd., who cut his rating on the stock to ``hold'' from ``buy'' on Oct. 28. ``I would like to see what other parties they deal with so we can analyze what risks are involved.''
  
  Goldenport's protection and indemnity insurer is facing a ``growing deficit'' and will charge the shipping line $2 million as a one-off fee, the company said. ( Source: here )

WOW!

• ``Activity in the dry-bulk segment has virtually halted, with minimal trade taking place globally,'' Chief Executive Officer Paris Dragnis said in a statement today. Future leases will probably earn ``significantly lower rates.''

That one statement above is outright scary. We are not talking just talking about lower shipping rates but that the activity has halted brings a whole new perspective to the shipping industry!

On Bangkok Post, one should really pay attention to what Chandchutha Chandratat, managing director of Thoresen Thai Agencies Plc (TTA) is saying. TTA: Rate plunge will hurt

• Thoresen Thai Agencies Plc (TTA), the country's biggest dry bulk shipper, says a sharp drop in freight rates in the wake of the global credit crunch would hit its results in the next two years.
  
  Shipping rates have plunged to a six-year low as cargoes are stranded by tighter trade finance and the global economic slowdown curbs demand for raw materials, said M.L. Chandchutha Chandratat, the TTA managing director.
  
  ''Traders are finding it hard to get letters of credit that guarantee payments for goods, while banks are wary of financing commodities and shipping transactions,'' he said. ''This symptom has already been felt, and yes, this is going to hit us in 2009 and 2010.''
  
  The Baltic Dry Index, the main gauge of shipping costs for commodities, fell 5.8% to 925 on Wednesday, down 92% from its peak in May at 11,793.
  
  TTA earned 4.97 billion baht on revenues of 21.3 billion last year.
  
  ''2008 will be the year we break all our records in terms of both profit and sales,'' M.L. Chandchutha said of full-year results due for release on Nov 28.
  
  He did not give a specific forecast, but 11 analysts polled by Reuters Estimates expect TTA to post a 57% rise in 2008 net profit to 7.8 billion baht, on revenues of 30.2 billion, up 42%.
  The company's 10 billion baht in cash and its low debt would help it to weather the financial storm, he said.
  
  To help offset the impact of a slowing world economy, the company planned to look at investments in energy and infrastructure, M.L. Chandchutha said.
  
  TTA had no plans to cut capacity yet, ''but we won't make any investments for at least three to six months'', he said.
  
  TTA shares, down nearly 80% this year after peaking at 56 baht in May, closed yesterday on the Stock Exchange of Thailand at 10.70 baht, up 85 satang, in trade worth 490.93 million baht.
  
  While some companies have taken advantage of the stock slump to buy back their shares, M.L. Chandchutha said he had no such plans.
  
  ''Buying back shares hasn't really stopped foreign funds from selling,'' he said.

And it makes one wonder why the Malaysian bulk shippers have chosen to remain silent now.

Other postings that matter:

1. Views On Current Weakness On Baltic Dry Index
2. The Collapse of the Baltic Dry Index
3. Goldman Downgrades Bulk Shippers!
4. Baltic Dry Index Keeps Falling!
5. Baltic Dry Index Stages Strong Rebound!
6. Baltic Dry Index Set For Strong Recovery???
7. Baltic Dry Index Plunges To Seven Month Lows!
8. The Baltic Dry Index Keeps On Plunging!
9. Baltic Dry Index Continues To Plunge
10.The Plunging Baltic Dry Index And The Dangers Of Using Forward PE!
11. Baltic Dry Plunges Below 2000!!!
12. Admist The Plunging Baltic Dry Index, Dr. Marc Faber Warns That Some Shipping Lines Could Go Bankrupt!
13. Comments Heard Admist The Plunging Baltic Dry Index ( recommended reading!)
14. Shipping Giant Neptune Orient Lines (NOL) Warns of Losses!