Shipping Rates Plunge as Owners Fret About Trade War Impact

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  • Freight Rates on negative bullish trend
  • Economists and analysts could see economic and trade growth

Right after the effective trade policy revision by U.S. President Donald Trump which had fired its first phase in his trade war with China.

In response, the market for hauling bulk commodities that power the Asian country’s economy were on a surprising freight rate surge. But that’s not expected to hold now and will soon change.

Dry bulk carriers affected

This declining trend in rates will eventually haul iron ore and coal on 1,000-foot Capesize ships.

Capesize day rates slumped 3.9 percent to $16,559 a day on Wednesday, according to data from the Baltic Exchange. They stood at $27,283 on Aug. 6. Fourth-quarter forward freight agreements fell to $23,750, having been at $26,600 on Aug. 21, data from Clarkson Securities Ltd. show. The Baltic Dry Index, a wider measure of commodity transportation costs, slumped to 1,411 points, its lowest since late June.

It has plunged by 39 percent since it reached its peak in early August 2018. Also, fourth-quarter hedging contracts dropped by 11 percent from its last month high.

“Some of the weakness we have seen in dry bulk freight rates can to some extent be attributed to growing uncertainty around the trade war,” said Peter Sand, chief shipping analyst at BIMCO, a trade group representing 2,100 ship owners and operators. “It is an increasing worry that we hear amongst our members.”

What it shows?

Some observers say freight costs offer investors clues about economic and trade growth. Increased purchases of iron ore feed China’s steel mills and ultimately power the country’s construction industry.

Also, Coal is predominantly used in power generation.

Those paid to follow the dry-bulk market and its companies are staying overwhelmingly bullish for now.

Of the 10 dry-bulk ship operators tracked by Bloomberg, with market valuations exceeding $500 million, equity analysts have a total of 87 buy ratings, 8 holds, and six sells.

Another tariff lined up

Trump said on Friday that he’s lined up an additional $267 billion of Made-in-China products to tax “on short notice if I want.” That’s on top of already proposed levies of $200 billion that could lift the price of household goods in the U.S..

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Source: Bloomberg

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