The Baltic Exchange's main sea freight index .BADI, which tracks rates to ship dry commodities, fell to its lowest in nearly two years on Wednesday as growing fleet supply and slow trade hit sentiment.
Brokers said flooding in Australia was disrupting shipping activity at a time when the dry bulk market was struggling with vessel deliveries ordered before economic turmoil in 2008.
The index, which gauges the cost of shipping commodities including iron ore, cement, grain, coal and fertiliser, fell 1.82 percent, or 27 points, to 1,453 points and was at its lowest since Feb 4, 2009. It has fallen over 30 percent since first dropping on Dec. 7 last year.
Fresh flooding in Australia, the world's biggest coal exporter, as well as weather-related problems in Colombia, South Africa, Russia and Indonesia have hurt coal shipping.
"As well as limiting chartering activity, force majeure declarations such as those in Australia effectively release vessels back onto the market raising fleet availability and therefore lowering freight rates," said Derek Langston, a senior director at SSY Consultancy and Research.
RISING SHIP DELIVERIES
Cancelled coal shipments in Australia have battered capesizes, which typically haul 150,000 tonne cargoes such as iron ore and coal, compounding supply pressures in that market.
"The capesize index is at its lowest since Q1 2009 and the freight market is showing little or no sign of downward resistance," broker Fearnleys said.
The Baltic's capesize index .BACI fell by 4.77 percent, with average daily earnings sliding to $10,285.
Brokers said more panamax vessels were expected to voyage towards the Atlantic from the Pacific in search of business, adding to rate pressure.
The Baltic's panamax index .BPNI fell 0.25 percent, with average daily earnings dropping to $15,709, erasing five previous sessions of modest gains. Panamax vessels usually transport 60,000-70,000 tonne cargoes of coal and grains.
Analysts said a potential ban on iron ore exports from India's top producing state Orissa, together with tropical cyclone Vince, heading towards Australia's northwest coast and its largest iron ore export port, could also weigh on earnings.
"The short-term effects of a cyclone hampering Australian exports is likely very negative, especially for the capes, while less iron ore exports from India would primarily have a negative impact on supramax and panamax rates," Pareto Securities said.
The Baltic's main index has remained erratic since 2009 because of swings in Chinese demand for iron ore.
"The first quarter of 2011 does not hold great prospects for the dry bulk market mainly because the oversupply of vessels is getting too heavy even for the 'normal' inefficiencies of the market," said Peter Sand, analyst with ship association BIMCO.
Despite indications of some vessel cancellations and delays, analysts expect deliveries gather pace between 2011 and 2012.
SSY said new building deliveries reached 78.2 million deadweight tonnes (dwt) in 2010 versus 43.5 million dwt in 2009, assuming a non-delivery rate of 35 percent from the order book at the start of 2010.
"If this non-delivery rate were maintained in 2011, then we would see new building deliveries reach almost 90 million deadweight tonnes," SSY's Langston said.