Thursday, November 20, 2008
Hopes ride on simpler payments to salvage dry bulk shipping rates
Thursday, 20 November 2008
Radical steps to tackle the crisis in the shipping industry triggered by a collapse in dry bulk freight rates will be proposed at emergency talks in London. The conference will consider plans to simplify payments in the complex chains of transactions whereby operators charter dry bulk ships from owners, then charter them on to others. Many in the industry believe shipowners' fears about the financial stability of other parties in such long chains are exacerbating a crisis of confidence that has seen many activities grind to a halt in the past six weeks.
Banks are increasingly unwilling to finance vessel purchases, give guarantees for payments to shipyards or guarantee payments for the goods such as iron ore and coal that the sector handles.
Shortage of finance has combined with fading confidence and falling demand to create a collapse in short-term dry bulk shipping rates. The average rate to charter a Capesize dry bulk carrier, which hit a record of $233,988 a day on June 5, has fallen 98.4 per cent to an average $3,670, far below operating costs.
Bankruptcies among shipowners unable to service debts will worsen conditions. Forced sales of vessels could push values down even more, prompting banks to call in loans secured against ships. Two operators - Ukraine's Industrial Carriers and London-based Britannia Bulk - have gone into administration.
Freight Investor Services, a London-based shipping derivatives broker, will make proposals to simplify payments to the conference, which has been organised by the Baltic Exchange.
In a letter sent to clients and seen by the Financial Times, FIS suggests an arrangement for dry bulk markets similar to one it has implemented to settle freight futures contracts.
FIS suggests participants in its suggested pool for physical ships would make a single net payment into or out of the pool every 15 days for all the vessels they either chartered or owned.
Adapted from Financial Times
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