Shipping Companies Believe Current Rate Hikes Are Temporary

Image via Flickr by zackzen

Every day the Baltic Exchange in London releases the Baltic Dry Index, which tracks the prices of shipping bulk freight. This week, prices are up 14 percent over last week, and have reached the highest level of the current year. Though most company representatives only agreed to speak with reporters anonymously, most are in agreement that these price hikes are temporary and should stabilize by next year.

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There is not one single cause for the rise in shipping rates, but rather several issues which have arisen concurrently to combine to drive up shipping prices. There is a higher demand for iron ore in China, which remains the world’s largest producer of steel. This higher demand has led to higher rates. Additionally, more coal is being shipped from Indonesia to India and Wes Africa, also increasing demand and raising prices.

Before the market stabilizes, it could get worse. Tensions mounting in Egypt could affect shipping routes along the Suez canal. This could drive up the rates for shipping via tanker, as ships must take the longer, more costly route around the Cape of Africa. There could also be a lower availability of ships soon, as about 10 percent of the world’s 500-600 Suezmaxes are retired and decommissioned. However, market experts say there is already an over abundance of these ships in service.

The last significant rate hike in the shipping industry was also temporary. It was blamed on China’s stocking up on coal and iron ore for the steel production industry between December 2012 and January 2013. The Chinese were preparing for the Chinese New Year, which occurs in February, and rates rose 17 percent during this period.

The Baltic Dry Index tracks prices of moving major raw materials via sea routes. To an extent, speculation drives these prices more than the actual demands for shipping services. [/show_to]

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