Global freight rates, both in the tanker and dry bulk segments, continued their downward journey, forcing ship owners to keep a slice of their fleet idle as the rates at times did not even cover the operating costs, the whole of last month.

Shipping analysts feel that the tanker rates, which touched distress levels, may get some support in the next few weeks, especially with an expected increase in heating oil demand in the US and Europe that could lead to increased movement.

However, the dry bulk segment is unlikely to post any significant recovery, especially with Chinese steel production slated to be cut.

VLCC rates

Freight rates for a Very Large Crude Carrier (VLCC) fell from an average of $37,368 a day in April 2010 to $7,109 and $2,475 in August and the beginning of September respectively. The rate touched a low of $1636 on September 29, forcing many tanker owners to keep their fleet idle.

Similarly, in the Suezmax segment, the daily earnings of a vessel tumbled from an average of $26,869 in May this year to $8625 and $3305 in the last two months.

Dry bulk segment

On the dry bulk front, the Baltic Dry Index hovered between 2,737 and 2,446 in September, after touching a high of 3836 in May this year. “Weakness in the dry bulk freight rates is expected to continue in October. We remain cautious as steel production in China continues to moderate, which would necessitate a drop in iron ore inventory levels,” a latest report by ICICI Securities says.

The report further points out that new building orders for dry bulk vessels declined from 93 to 68, while that for tankers increased from 32 to 38 in September. Analysts feel that in the long run, the new building orders may keep freight rates subdued.