Thursday, September 8, 2011

Freight rate collapsing: Foreboding coming tsunami

Yesterday from bloomberg
Freight charges collapsed on the Asia-to-Europe lines, the world’s second-busiest route, as a capacity glut combines with the slowest growth in trade since 2009. Rates excluding fuel surcharges were “practically” zero in July and little changed last month, the worst run ever, according to Menno Sanderse, an analyst at Morgan Stanley in London.
“A lot of companies run the risk of default if freight rates remain at such a low level,” said Jacob Pedersen, an analyst at Sydbank A/S, Denmark’s third-largest publicly traded lender. “Companies have been taken by surprise this quarter because just a few months ago they were all sure there would be a lack of capacity and that would be positive for freight rates.”

and in CNN website
The executives were speaking amid a slump that has sent the rates paid to charter ships way below vessel operating expenses. The average short-term spot market rate to charter a very large crude carrier -- the largest widely-used class -- from the Gulf to Far East on Friday stood at just $1,795 per day, compared with the $29,800 that Frontline, the biggest listed tanker operator by fleet capacity, recently said such vessels needed to break even.

Nasdaq-listed Omega Navigation, Netherlands-based Marco Polo Seatrade and several other small operators have already been forced into bankruptcy protection. Cyprus-based Ocean Tankers, which made a €19.6m net loss for the first half on €9.77m income, has had several of its ships arrested -- held under court orders by creditors -- during port calls this year.

Now executives predict that far larger names are likely to follow. Moody's last week downgraded one operator facing acute challenges -- New York-listed General Maritime -- to Caa3, only just above default.

The collapse of freight rate indicates either falling trade or shipping glut, which points to a even larger underlying economic problem.

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