Virus fears weigh on global shipping sector

MarketsFarm — Global shipping rates continue to decline, hitting record lows in some cases, amid declining demand and concerns over the coronavirus outbreak in China.

The Baltic Dry Index (BDI), compiled by the London-based Baltic Exchange, provides an assessment of the price of moving major raw materials by sea. The BDI has fallen for 13 consecutive sessions, hitting 453 points on Tuesday.

That marks the lowest level in four years, and is only slightly above the record low of 290 points hit in February 2016. The index was at five-year highs around 2,500 points as recently as September 2019.

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The overall BDI includes sub-sectors for the different classes of ocean vessels — including capesize, panamax and supramax.

The capesize index accounts for the largest vessels that typically carry iron ore or coal. They are too big to travel through the Panama or Suez Canals, and must go around the Cape of Good Hope or Cape Horn. That index fell into negative territory for the first time ever at the end of January, and settled Tuesday at minus 133.

Coronavirus fears have cut especially into iron ore demand, with steel facilities and construction sites in China temporarily shuttering operations, according to reports. Recent flooding in Minas Gerais, Brazil has also limited exports from the key iron-producing region.

The panamax index tracks the 60,000- to 70,000 tonne-capacity vessels that often carry grain or coal. It has also fallen over the past few months, hitting 526 points on Tuesday.

A slowdown in the demand for shipping is generally seen as a sign of a softening global economy. However, lower freight rates can also lend some support to Canadian grain exports. Canada is often at a freight disadvantage compared to its competitors into some markets, and lower rates help reduce that disadvantage.

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