Surging Dry Bulk Rates Are "Just Prolonging the Pain" for the Sector

The Baltic Dry Index gained another 16 points Tuesday to reach 487.

While the Baltic Dry Index (BDI) gained another 16 points Tuesday to reach 487, some industry commentators suggest that the current rate surge is actually prolonging the difficult times for market participants.

Average TC spot rates in both the Capesize and Panamax segments rose Tuesday, reaching earnings of $3,840 per day (+328) and $4,760 per day (+263), respectively, while the Supramax segment held steady at earnings of $5,004 per day.

David Fickling, writing for Bloomberg Gadfly, says that the BDI's gains over the past few weeks may appear to be good news, but taking into consideration how much the index has previously fallen paints a different picture, noting that the benchmark averaged 1,100 over the five years through 2015, and 4,406 in the five years prior to that.

Flicking calls the dry bulk market's current supply side "a horror show," pointing out that, despite current scrapping rates and heavy losses within the dry bulk market, the world's dry bulk shipping fleet is still growing, with an estimated 2.8 million DWT having been added since December.

"Against that backdrop, better rates are just prolonging the pain. Instead of sinking outright, the industry's excess supply retains just enough buoyancy to cause a shipping hazard," concluded Flicking.

While Capesize vessels have made a significant rise over the past two weeks, Flicking says that rates are still short of typical vessel operating costs, pointing to Bloomberg Intelligence's Lee Klaskow note that dry-bulk carriers "burned" through $12 billion in January and February, and adding that removing the market's excess capacity could take as much as two-and-a-half years.

Last Friday, other industry experts also told market participants not to be fooled by BDI's surge, warning against placing too much optimism on there being a meaningful recovery.