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I worked on Wall Street for twenty five years. I was an FX trader during the early days of the 'snake' and the EMS. Derivatives…

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Baltic Dry Index Set for a Big Fall?

A friend calls from Athens this morning moaning and groaning about the sorry state of the shipping industry. I ask, “What’s new that makes you so grumpy?” He points me to this story concerning the bankruptcy of a Korean shipping company called Korean Lines (“KL”) .

My friend made the following points on this development:

- KL owns about 30 ships and manages another 120. As a result of the chapter filing almost all of these ships are coming back onto the spot market. The KL financial status was known by many insiders (bankers/brokers/shippers). This was a contributing factor in the big run off of the Baltic Dry index recently.

- Spot shipping rates have nowhere to go but down as a result.

- The Chinese ship construction schedule will bring many new ships into service this year. This will depress rates further. Cargo ship asset values are falling.

- Some banks will take big losses. Other shipping companies like KL are now on the edge.

- The dry bulk cargo industry has crossed (once again) from boom to bust.

This is just one man’s opinion. He happens to own a dozen vessels.

By. Bruce Krasting


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