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G. ChandraShekhar

International freight industry representatives attribute the fall in rates to an increase in freight supply rather than decrease in demand.

OCEAN freight rates on main bulk routes are collapsing. The decline in rates has got industry observers worried. The belief that there is a fall off in demand in bulk commodities such as iron ore, coal and grains is gaining ground.

Last month, when the rates feel sharply, industry representatives attributed it to reduced chartering of large Capesize vessels as mineral demand in China remained unexpectedly muted. The Baltic Index fell to its lowest level since July 2004.

Shipping industry reports suggest that freight rates for iron ore have declined by anything between 33 per cent and 44 per cent since early April, especially from Australia and Brazil (origin) to Europe and China (destination). For instance, Brazil-China freight rate, which was $38.50 a tonne for iron ore by early April, is now down to $21.75/tonne.

During the same period, Australia-Europe route found rates decline from $21.4 to $14/tonne. Spot freight rates for coal and grains too have suffered a similar fate. The fall has been especially steep in Capesize vessels (165,000 DWT ships). Some players believe falling steel prices may be encouraging iron ore importing countries such as China to defer shipment.

But a more accurate representation could be that shipments are being deferred to obtain cheaper freight rates in a falling market.

International freight industry representatives attribute the fall in rates to an increase in freight supply rather than decrease in demand. Supply growth is said to be steadily tipping the balance.

One new Cape is built every eight days and one new Panamax every four days, pointed out an observer. Weaker iron ore shipments from India, weaker coal demand from Japan and a slowdown in Chinese soyabean imports too have contributed to falling ocean freight rates.

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