The recent precipitous drop in the Baltic Dry Index (BDI) does not augur well for the global shipping industry, says Fitch Ratings. The industry has been plagued by overcapacity and poor cash generation since 2009, and we expect an increase in the number of distressed shipping credits over the next 12 months.Worsening cash flows are leaving very few ship owners and operators unscathed. Even those chartered out on long-term contracts are feeling the impact of the downturn, with many counterparties either defaulting or renegotiating charter rates.In January the BDI, a measure of commodity shipping costs, dropped below 1,000 for the first time since January 2009, and continued falling to a 26-year low of 662 on 1 February 2012, 69% below 2011's high of 2,173. In addition to falling global trade, January's dramatic drop was due to new shipping supply, bad weather conditions and an early Chinese new year holiday period.Significant falls in the BDI have historically followed or accompanied global recessions, including in 2008-2009 when the BDI fell by 94% from a high of 11,793 in May 2008 to a low of 663 in December 2008. Although the fall on this occasion is not quite as large in percentage terms, in absolute terms the index has marked new lows, which serve as a stark reminder of the depressed state of the global shipping market.
Date:February 8, 2012 Source: Fitch Ratings