Should Bankers Have Butterflies?

Freight rates in the dry bulk markets are at or closely approaching levels not seen for the past ten years. The Baltic Freight Index has now fallen below the 1000 level for the first time since the onset of the Gulf War in 1987. The only issue left is how much further the index will fall, or more specifically will it, when adjusted into time charter equivalent per day terms, drop below what owners need to cover their operating costs.

The reasons for the sharp downturn are largely agreed upon: newly delivered tonnage exceeding expected scrappings coupled with reduced tonne/mile demand. While the major information houses see “some more positive signs…emerging in the macroeconomic picture that could provide a boost for demand” (Clarkson’s), the reality is that “dry cargo market confidence continues to be undermined by supply-side worries” (Drewry’s). We believe the real issue has now focused on whether the upturn will, in fact, occur in 1998 or beyond.

What impact is the decline of the dry bulk market having on the ship finance markets today? Is perhaps the more appropriate question to ask whether it should have an impact at all?

This is only an excerpt of Should Bankers Have Butterflies?

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