BDI hits rock bottom!

The BDI hit a 26 year low at 647 points on the 3rd February 2012, just marginally higher than the all time low of 554 points struck in mid July 1986. The 647 points was lower than the post-Lehman low of 663 points struck on 5th December 2008. The BDI since then has recovered marginally and reached 734 points as of the 14th February 2012. So what makes these three low points in the BDI history different, you might ask. Not a lot, is the short answer. The one significant difference is that the post-Lehman 2008 low was due to a freezing of trade finance with Banks unwilling to trust each other and/or to honour their letters of credit. That froze trade in its proverbial tracks and propelled the BDI to its first 25 year low. The other two low points in the BDI have more to do with the fundamentals of supply of ships overwhelming the demand for their service. Sentiment, to be fair, has also played a large part. Charterers have reveled in their joy at being able to squeeze the very living daylights out of their Ship Owner adversaries, due to the panic and blood on the shipping-streets. But this cant last too long as the current rates are barely able to cover operating expenses leaving most Ship Owners having to dig into their reserves to pay for interest and repayment of bank loans. And, how many Ship Owners today, have any such limitless reserves? I remember only too clearly what happened in the mid 1980s. There were many a Ship Owner that went bust some privately and others more spectacularly - with Sanko leading the charge in the public arena. At the time, my incarnation was in the form of a large Charterer looking to get the lowest freights, just as I see many of the big-name Charterers doing today. But do the same Charterers remember the suffering they had to endure by going for the cheapest, and consequently, the weakest ship/ship owner during the mid 1980s? I think not. It seems that it is not only the Ship Owners, but also the Charterers, who suffer from the malaise so aptly described by the Spanish philosopher George Santayana who said Those who cannot remember the past are condemned to repeat it. Since the Lehman collapse of 2008, counterparty risk, which has become synonymous with Charterers not honouring their commitments, will become a very apt description for most Ship Owners under the current market situation. However, its not just the Ship Owners who face a counter-party risk because Charterers are also taking a risk on every Owner they do business with, in equal measure, but, I doubt whether the Charterers really do understand the risk that they are running in todays markets and I wonder what steps they are taking to mitigate such a risk. All we need is one spectacular bankruptcy of a large Ship Owner with lots of ships afloat with tons of cargoes belonging to different receivers all over the world when Charterers will begin to realize the import of the term counterparty risk and be happy to pay the large, financially strong, publicly listed and transparent Ship Owners, a reasonable premium to mitigate this risk.
Khalid Hashim, Managing Director Precious Shipping Public Company Limited