Shipping Rates Slow Down As Raw Materials Demand Hit


In a major backlash, freight rates for dry-bulk and container ships, carriers of most of the world’s raw materials and finished goods, have plunged over the last six months in the latest sign the global economy is slowing significantly, reports Straits Times.

What’s the present scenario?

The Baltic Dry Index, a measure of ship transport costs for materials like iron ore and coal, has fallen by 47 per cent since the middle of last year, when a trade dispute between the United States and China resulted in the world’s two biggest economies slapping import tariffs on each other’s goods.

Dry-bulk commodities are taken as a leading economic indicator because they are used in core industrial sectors like steelmaking and power generation, and analysts say the recent declines in activity point to a serious economic slowdown.

Expert Opinion

“Signs that the US and China remain well apart in trade talks continued to weigh on sentiment in commodity markets,” ANZ bank said in a note yesterday.

This was after US Commerce Secretary Wilbur Ross said on Thursday that the US and China were “miles and miles” from resolving issues.

“The global economy and dry-bulk shipping market are showing us very real signs of distress,” said Mr. Jeffrey Landsberg, managing director of commodity consultancy Commodore Research.

“While dry-bulk rates often face at least some pressure during the early stages of a year, the magnitude of the declines being seen lately has been very rare,” he added.

How is it impacting the Shipping Industry?

The Baltic index has lost a quarter of its value since the start of the year, and dry-bulk is not the only shipping market under pressure.

The Harpex Shipping Index, which tracks container rates, has dropped by 30 percent since June last year. As a measure of the demand for shipping manufactured goods from producers to consumers, container rates are also seen as a leading economic indicator. Their slump underscores weakening manufacturing data from Asia, Europe, and North America.

“Slowing global economic growth, the unresolved US-China trade conflict, the US government shutdown, and Brexit drama are all sources of uncertainty dragging at sentiment,” said chief market strategist Hussein Sayed at futures brokerage FXTM.

Business Growth Stalled

In the eurozone, a survey published on Thursday showed that business growth nearly stalled at the start of the year as trade tensions and political woes meant incoming new work fell for the first time in over four years.

Asian industrial powerhouse Japan posted similarly weak manufacturing data in its own survey this week. In China, the National Development and Reform Commission this week warned that the downward pressure on the economy would impact its job market as falling factory orders point to a drop in activity in the coming months.

The US has so far been in better shape than other leading economies, but even there, manufacturing indices have been reflecting weakness since late last year.

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Source: Straits Times