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Baltic freight index – Gaining momentum - Views on News from Equitymaster
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  • May 29, 2000

    Baltic freight index – Gaining momentum

    During the Southeast Asian crisis, increased available tonnage (capacity) and reduced demand for the same had affected the freight rates. But freight rates are now showing signs of recovery. Both the Baltic Freight Index and Baltic Handy index seem to be bottoming out from their previous years’ lows.

    The Baltic freight Index is the barometer of the freight rates in the dry bulk segment. It is the weighted average rate of freights, at any point of time, in the 11 major routes around Baltic region. After the upturn in 1995, when the freight rates bottomed out, the index has been fell victim to the Southeast Asian crisis. This affected both the dry bulk and the tanker segments due to reduced movement of goods.

    Headed North
    Date Baltic freight
    Apr-95 2,333  
    Apr-96 1,462 -37.0%
    Apr-97 1,292 -12.0%
    Apr-98 998 -23.0%
    Apr-99 1,057 6.0%
    Apr-00 1,600 51.0%

    The previous year saw one of the worst phases of shipping freight rates with the Baltic index falling below 1,000 mark (it hit the 800 levels at one point of time). Dry bulk segment also witnessed freight rates nose-diving to unremunerative levels with no apparent signs of recovery. Further, over the past few years, the gross additions in terms of newly built tonnage have exceeded the actual demand. This adversely affected the shipping companies.

    But things are finally shaping up. The Baltic index touched the 1,025 mark in beginning of August 1999. The index is currently at 1,598. Moreover, the Handy index, which is more representative of the Indian shipping companies, is currently at 1,140 recovering from the past blues.

    The total cargo handled by the Indian shipping industry rose marginally to 271.8 MT (251.7 MT in FY99). Good traffic in most segments has been improving with the recovery in the demand of commodities and economic improvement in Asia. This is backed by the significant growth in both exports and imports for India as well. In FY00, exports grew by 12.5% and imports by 10.5%. The upward revision in world oil demand has also helped this sector to see a reasonable growth. With all these favorable factors in place, the shipping sector should finally see an upturn in prospects. And probably valuations.



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