Baltic Dry Index Plunges But Container Rates Soars!

Hmm... I hope my following reply to the posting Baltic Dirty Tanker Index And Baltic Dry Index Plunging.. What Does It Mean? would not be too sensitive. Makes me wonder who is wearning the skirt. LOL! (Hey I am only sharing my opinion and if I may, I do hope that you would indulge in me again) :P

• but container rates are up.. now peak season

Firstly, the BDI closed down another 5% to close at 2018 last night! (hehe.. not shocked at all. Are you?)

Now since on 26 May 2010, the index was at 4209, surely this is a concern yes? Some might even panic. :D

Now back to container rates. Ok, I won't say I am aware but ... say I didn't. :P Well, my initial task is to ask myself, is the container rates up or down?

On 1st July 2010: Evergreen Marine raises shipping rates on European routes

• Taipei, July 1 (CNA) Evergreen Marine Corp. said Thursday it is raising its shipping rates on its European routes and will add surcharges during the current peak season.
  
  The shipping company said the rates on its Europe- Mediterranean westward routes will be increased from July 1 by US$250 per twenty-foot equivalent unit (TEU) , a measurement for capacity of container transportation.
  
  A peak season surcharge of US$300 per TEU will also be added..... "Strong demand for cargo transportation worldwide is likely to continue into the third quarter," he forecast

Huhu! Sharp increases from Evergreen!

Here's another: CSCL to impose surcharges on cargo-box shortage‎

• China's second-largest cargo-box carrier, intends to impose additional surcharges on transpacific shipping next month due to a global shortage of containers..... CSCL suffered a net loss of RMB 6.49 billion and RMB 1.92 billion in last year and first quarter of this year, respectively. However, the company’s profitability is improving because of the growing demand, said Zhao.

And here's another snippet. From a WSJ article:

• FRANKFURT (Dow Jones)--TUI AG's (TUI1.XE) shares soared on Tuesday after it raised its guidance for its container-shipping operations, citing a recovery in global container shipping. ......... "Transport volumes and in particular freight rates have continually improved over recent months and are considerably up year-on-year," TUI said in a statement. ( date: 6 July. Source: here ) ( Hehe.. container shipper gave positive guidance and the stock soars. :P )

The next article was written on 7/7/2010: The BDI May Have Collapsed, But Check Out The Shipping Rebound Everybody's Missing

• What many have missed, however, has been the surging rates for container shipping, which primarily measure demand for products from developed nations (mostly the U.S. and Europe) against global container ship supply.
  
  

So the container rates are up since the start of the year. Assuming the chart is accurate, yes the index recovered but like many so-called recoveries branded around us, where the index is at now, pales in comparison to the previous years, yes? Look at the chart, exactly 2 years ago, the BOXi index was closed to 150. Now it is around 72++. Yeah same old same old. Have recovered nicely from the 'lows' but still pales in comparison verus its peak years. ( Now this is my interpretation, and if you think this interpretation of the above is wrong, do let me know.... why. Yeah, do explain why. :D )

Next, I would ask myself why the container rates are up? Is container shipment up because of the demand driven by lots of container shipments ( this would be great news, yes?) or is there some other reasons?

Here's an article posted on Tuesday: Baltic Dry Index Down, Container Freight Rates Up, What’s Going On?. Ah... it addresses the same issue.

The article notes the demand of container space... but importantly, the article states the following..

• but Nils Smedegaard Andersen the chief executive of A.P. Moeller-Maersk is quoted in a Reuters article as saying the increase in container freight rates is the result of a shortage of shipping containers, not a booming global economy.

Shortage of shipping containers! And not a booming global economy! Sounds like what we witnessed much earlier on the BDI incredible rebound.

Nils continues..

• During the last 19 months, container shipping companies didn’t order any containers. “Now the economy has picked up and that leaves us with a shortage of the containers. We hope at best for a slow recovery. We are not optimistic.”

Stuart Burns who writes the article, concludes..

• So all is not as it first seems. Bulk cargo rates are falling more because of vessel supply than a sharp decline in trade while container traffic rates are rising more because of a shortage of containers than a booming finished goods market. Not surprisingly the recovery continues to be a rocky road even if so far it appears to be heading more or less in the right direction.

And here's another article posted end of last month: What's Really Happening in the Transpacific Ocean Market

It's interesting because it talks about slow steaming vessels! LOL! Smart eh? Slow vessels movement when there is vessel and container box shortage!

• Slow Steaming impact a mess though expedient. Customers have been angry with the corner they’ve been pushed into. And slow steaming has wrecked havoc with container box availability as a result. We have had countless comments/queries on how some lines could not have seen this impact earlier. Vessels may have speeded up marginally but the liners fell into a good gimmick (lower fuel costs and lower capacity) at the expense of customer
  Impact of no box. As a result, customers have been put on a shorter leash with no box choices. And rate upward momentum is firmer as a result. But customers don’t feel necessarily grateful if they get good equipment allocation. We think they have gotten the wrong end of the bargain.

Last but not least the Baltic charts...

Here's the closing numbers of the Baltic Indices.

• Baltic Indices
  
  Baltic Dry 2,018 (-5.12%)
  Baltic Capesize 2,291 (-7.17%)
  Baltic Panamax 2,081 (-5.02%)
  Baltic Supramax 1,870 (-2.76%)
  Baltic Handysize 1,029 (-1.25%)
  As of 07/07/10
  
  Baltic Dirty Tanker 814 (-0.73%)
  Baltic Clean Tanker 818 (-0.12%)
  As of 07/07/10

How? What are the indices suggesting?