Shipping firms’ recovery stymied by drop in dry-cargo transport prices
The sharp fall of the Baltic Dry Index (BDI) to a record low has caused serious concerns among Vietnamese shipping firms. The BDI, issued daily by the London-based Baltic Exchange, provides an assessment of the price of moving major raw materials, including coal, iron ore and grain, by sea.
It is considered the “meter” that measures the freight costs of dry cargo around the globe. And it has a direct impact on Vinalines’ ship chartering fees.
The Vietnam National Shipping Lines (Vinalines) several days ago reported a positive cash flow as of the end of 2014, hoping that this was a positive sign. Shipping firms had been trying to cut expenses and control the use of fuel, which makes up 40-50 percent of operation costs. This had allowed them to make profits in a depressed market.
However, their optimism has gone as the BDI has dropped to record lows.
Reuters has reported that one-third of dry cargo shippers filed for bankruptcy this month following a collapse in freight rates, and that shippers are experiencing what they call the “worst market conditions since the 1980s”.
Of the three major transportation sectors – dry cargo, oil transportation and logistics – dry cargo is most influenced by market changes and it has had the largest impact on Vinalines’ business operation.
Meanwhile, Vinalines, the leading Vietnamese shipping firm, now has to struggle hard to overcome big difficulties and recover from losses it incurred in the last few years. It is planning to sell old, poor-performing ships this year. The total shipping capacity of Vinalines will drop from 2.28 million DWT to over two million DWT this year based on plans to sell ships
A report showed that Vietnam had 1,840 ships with total tonnage of 7.4 million tons by the end of 2014. The fleet undertakes nearly 100 percent of domestic sea transportation works, but only 10-12 percent of sea import/export transportation.
Vietnamese vessels have been mostly operating on short-distance routes in South East Asia, North East Asia and the Middle East. However, in all markets, the freight and fee are calculated based on BDI.
The continued volatile BDI, analysts said, could seriously affect profits of Vietnamese shipping firms.
After hitting the 2,300 point threshold in late 2013, BDI fell steadily in 2014 to 700 points, losing 2/3 of its value.
A senior executive of Vinalines said the BDI had plunged even more dramatically since early 2015. It dropped to 516 points on February 25.
Analysts also warned that the supply of dry cargo ships is still on the rise. The total tonnage of the ships increased by 4.3 percent in 2014 over the year before, while the oversupply would be even more serious in 2014-2016, with total tonnage of newly built ships expected to increase by 21.3 percent.