The global scramble for grain imports together with resurgent demand from Chinese steelmakers pushed up the shipping freight to a two-month high last week. The Baltic Dry Index for iron ore, coal, grains and cement jumped 67 per cent in just over a month after it slid to its lowest since early 2009.
Will it sustain, ask many in the world of shipping. The BDI's rally is being viewed by many as a barometer for the revival of the world economy. Russia's ban on grain exports will force consumers in West Asia and North Africa to get supplies from elsewhere, thus, creating demand and putting pressure on freight.
At the same time, Capesize rates have doubled in less than a month after purchase of iron ore by Chinese steelmakers, the main driver of Capesize vessel rates, have picked up. As a cumulative effect of all this, traders expect a seasonal increase in demand for grain and iron or till the fourth quarter.
But some analysts have warned that the rally could be short-lived. The freight rate is determined by free interplay of market forces. As demand increases, supply will surge. According to one estimate, the global fleet of Capesize vessels is to rise by 20 per cent in 2010 and 2011, but the seaborne trade, and therefore, the freight is not expected to rise anywhere near this.