There are several shorthand names for the various sizes of freighters in the world today. The Supramax are the smallest at 35,000 to 60,000 tons. The Panamax are the largest ships that can pass through the Panama Canal - 65,000 tons. The Capesize ships are in excess of 150,000 tons and can not pass the Suez Canal which means they transit Cape Agulhas or Cape Horn when moving goods globally.
The most recent report on the Baltic Dry Index shows that the Capesize ship rental rates have dropped from over $164k to less than $6k in the last twelve months, with the bulk of that drop happening in the last few weeks. The stock of DryShips.com, the largest operator, has dropped 85% in the last twelve months. The second largest, Diana, dropped 60%. The third largest, Genco, dropped 72%. These companies are all very near or already at bankruptcy.
Stock prices are subject to external forces. Speculators can buy puts and calls, betting on the stock's movement either up or down. The Baltic Dry Index is a simple market and has no such pressure. No one can buy a future on a transshipment - you've either got a load of stuff to move or you don't. Everyone involved is either a ship operator or a customer in need of large scale shipping. As I said in the lede this index is an excellent proxy for real economic activity ... or the lack thereof.
The situation is well and truly grim:
As a result the world’s ports are filling with empty ships because shipowners can’t afford to run them, as well as some full ships because the owners of the cargo won’t unload without a bank letter of credit, which banks are refusing to supply. Shipping companies are starting to file for bankruptcy in increasing numbers as they breach loan covenants, and a shipping researcher, Andreas Vergottis of Tufton Oceanic has told Bloomberg that a fifth of the world’s dry bulk companies may soon have negative net worth because the market for second hand ships has collapsed and the value of their fleets is below outstanding debt.
Two things happen when a bank calls an operating loan on a large shipper. The older, less efficient ships make one final voyage to Pakistan where they're beached at high tide and then cut up by hand at low tide. The modern ships have another fate; some sovereign wealth fund, knowing that someone, somewhere, is eventually going to need to move dry goods again, purchases and mothballs the ships awaiting an opportunity to control the market in the future.
We crossed a tipping point in May of 2005 - the end of the oil epoch. So much of our mindset is based on the concept of an infinite Earth. That might have been a reasonable assumption for John Locke over three hundred years ago but today we're all too aware of the cramped, limited nature of this planet. Running out of easily accessible energy is going to knock us back to the solar maximum of where ever we happen to be. That solar maximum can include wind turbines, hydroelectric facilities, and solar PV and thermal systems ... or it can be nothing but wood lots. That means a whole lot fewer humans left alive and the collapse of the civil society we've come to know as our electric grid implodes.
The Obama administration is going to try to blow a renewable energy bubble to replace the collapsing housing bubble. Nothing can put us back to the way we were before global oil production peaked but this move could get us to a stable, lower energy position ... but only if we gracefully accept that we're going to work just as hard for a whole lot less in the material realm. And we have to stop shipping out businesses we're going to need here just because it'll save a nickel for the next quarter.
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