Bulk shipping index continues to drop

Mixed results are expected for Australia’s bulk exporters, as the Baltic Dry Index continued its decline last week.

Fears of a global trade slowdown have driven the index – used as an indicator for the price of bulk commodity shipping – to a record low of around 354 on January 22, a far cry from the recent peak of around 2,000 in October 2012.

For Australian coal, iron ore and other bulk exporters, the news is a double-edged sword.

On the one hand, the cost of shipping commodities from Australia to China, Japan, South Korea and other Asian customers is cheaper than it’s been in recent memory. Cheaper rates also allow the potential for Australian exporters to send their commodities to new, more distant customers.

On the other hand, the index’s slump diminishes the competitive advantage Australian exporters enjoy thanks to their geographical proximity to those Asian customers.

The most obvious example of this, as ABHR reported last fortnight, is the advantage iron ore majors BHP Billiton, Rio Tinto and Fortescue Metals Group enjoy over Brazilian mega-miner, Vale.

The two-sided nature of the declining bulk shipping index for Australian exporters was highlighted by ship broker Peter Malpas in an interview with The Australian.

“A weak freight market is not necessarily always to our advantage,” Malpas was quoted to have said.

“Equally we can open up opportunities for other commodities to supply further afield, so we can go into other markets where maybe freight in the past has been an impediment.

“So it can work both ways, it can open up new markets for producers of minerals and agri-goods.

“It’s very much a mixed story.”