Negative Rates

Ahoy There!
This is probably not going to interest many of you folks, but some may find it readable.
We dug a little deeper into these reported negative rates as this just was not adding up. Remember, Boomer and I are both "slow steamers" so bare with us. Since Jan 13th 2011 the costs to charterers fixing on C11 have been negative. That is to say the ship owners are paying to have their vessel employed on journeys. In practicality, the owners are determined to reposition the vessel towards the supposed brighter employment capacity of the Atlantic. In reality, they find it to their benefit to fix a deal with a client that allows the client the use of the vessel holds and crew, and the ship owner helps pay for some of the voyage costs (current rate owner pays client $788 daily) the client would otherwise be forced to pay. This saves the owners enormous money compared to an outright ballast voyage. A win win deal they profess?

We at DryBits remain skeptical of the Baltic’s criteria allowing these fixtures in the route consideration without a greater discount being applied. The only good news would be this route C11 carries only a 5% weighting in the overall BCI calculation. An additional (-2%) adjustment might be a good initial correction the Baltic could levy, considering the increased prevalence of ballasting dictated by an increasing global fleet size. Should the Baltic Exchange drag their feet on this issue we may witness extended periods of routes operated at a loss. A bit of info about the Capesize Route C11 for any newer observers follows. Per the Baltic;
C11 172,000 T/C Delivery China-Japan, redelivery ARA or passing Passero, duration about 65 days 5%. C11 =Route, 172,000 = Vessel size, T/C = Cargo, Delivery China-Japan, redelivery ARA or passing Passero, duration about 65 days = Route description, 5% = Weightings.

All in all, we know ballasting will continue as long as owners find themselves in unprofitable discharge and or redelivery locales. The propensity for logical vessel ballasting will increase with global fleet size, and it would be a service to the market if the Baltic compensates for the flawed metric. The Baltic failed to intervene when ships got scarce and rates soared uncontrollably beyond reason. None of us complained I am sure. Perhaps if they had discounted the peak, we would not have seen the astronomical rates that glazed the owner’s eyes and led them on a record spending spree that we now live with. When routes are experiencing extremes and the effects are allowed to impact the broader index, the results are snowballed into all the routes. Not a fan of over regulation, but improvement could be possible. Yes, this would impact the same rate system that allows the tremendous rate jumps we so enjoy. Danged if they do, danged if they don’t.

Good Fortunes
Ski