The Baltic Exchange's main sea freight index .BADI, which tracks rates to ship dry commodities, fell on Monday for the first time in two weeks as cargo activity slowed and vessel availability increased.

Brokers said the earnings outlook was likely to remain volatile especially for the larger capesize vessels due to the growing fleet supply.

The index fell 0.46 percent or 6 points to 1,295 points after rising for ten session previously. Earlier this month before the modest rally, the index, which tracks the cost of shipping key commodities such as iron ore, cement, grain, coal and fertiliser, reached its lowest level in two years.

"I don't see that there will be any upturn ... because there are simply too many ships," said Sverre Svenning, director of research at broker Fearnleys.

Svenning said second quarter iron ore contract prices would be set by the end of the month.

"They will see that prices will be much higher than they have been in this quarter -- that makes domestic Chinese iron ore very competitive and the same goes for coal," he said.

"So I think they will source a lot more coal and iron ore domestically than abroad in the coming months."

Analysts said despite record Chinese iron ore imports in January supply was weighing on the capesize marketThe Baltic's capesize index .BACI fell 1.25 percent with average daily earnings dropping to $6,416 in fifth day of falls. Capesizes typically haul 150,000 tonne cargoes such as iron ore and coal.

The Baltic's panamax index .BPNI fell 1.2 percent, with average daily earnings dropping to $15,882 after twelve sessions of gains previously. Panamax vessels usually transport 60,000-70,000 tonne cargoes of coal or grains.
The Baltic's main index has remained erratic since 2009 because of swings in Chinese demand for iron ore, the primary ingredient of steel.

Adding to economic headwinds in western industrialised countries, a major source of shipping demand, are inflationary fears in China, which could potentially lead to further interest rate rises and a pullback in demand for ore, delivering another setback for shippers.

China on Friday raised required reserves to a record 19.5 percent, adding to an increasingly aggressive effort by Beijing to stamp out stubbornly high inflation.