Baltic Dry Index: Relief in sight for shipping companies

The recent rally in the Baltic Dry Index, a benchmark of dry bulk shipping freight rates, bodes well for shipping companies such as Great Eastern Shipping and Shipping Corporation of India. On Tuesday, the index rose 9% to 1478 points signalling a 52-week high. Over the last one month, the Index has risen by over 45%.

The recent rise may be attributed to two factors – the rise in Chinese iron ore imports and foodgrains expor t s from t h e United States. At the current price, shipping companies may make marginal operating profits in the dry bulk segment. This comes as a relief for companies as low freight rates and high fuel costs had resulted in losses for them in the last few quarters.



In FY13, Shipping Corporation of India posted an operating loss of Rs 367 crore in the bulk segment. During this period, the average index value was 903 points – 40% lower than the last closing value. Besides, since the freight rates are majorly set in dollar terms, the depreciation in rupee will further improve earnings of these companies. However, the upside in freight rates may be limited for this year as there is an oversupply of vessels in the industry.

As a result, earnings of companies will depend on the index settling close to this level.