Shipping companies worldwide are suffering from overcapacity or excess fleets and this depressed freight rates in the sector, reports indicate.
At the end of 2012, worldwide fleet of bulk carriers rose to 679 from 393 in 2007. Further, this is expected to see growth of 10 per cent and 5 per cent in the next two years, respectively, before it tapers to 2 per cent in 2015, reports indicate.
Overcapacity is one of the reasons for the sharp decline in the Baltic Dry Index (BDI) from an all-time high of 11,793 in May 2008 to the current level of around 1,000.
In the short-run, some analysts expect the index to rise because of strong demand for commodities from China.
Commodity prices are declining in the world market and this encourages China to substitute its domestic low-grade iron ore with importing high grade ore from as far as Brazil.
The BDI, the benchmark for freight rates of bulk carriers, has gained near 40 per cent in a month to 1,120 because of the rise in commodity import from China.
SCI, the countryÂ’s largest shipping company, has 16 dry bulk carriers, 23 crude oil carriers and 15 product tankers. The public sector company estimates that at the 1,100 level of BDI, some shipping companies will start making operational profit, depending on the bunker price and age of ship.
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