Ocean freight rates for coal, IEAPER/09

Author(s): Darrell Porter

Ref: IEAPER/09
ISBN: 92-9029-233-4
Published Date: 01/03/1994
No. of Tables: 0
No. of Figures: 13
No. of Pages: 22

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Ocean freight rates account for a significant part of the delivered price of coal. They are an important factor in determining the price of coal in different regions and the competitiveness of coal against other fuels. The main factor which will affect the future movement of freight rates are the overall development of dry bulk trade, the age and size composition of the shipping stock, and regulatory developments in shipping. In 1992 real freight rates were at their lowest level for many years because demand for dry bulk traded commodities was stagnant. However, at the same time the age composition of the dry bulk fleet has deteriorated with almost 40% of the fleet now over 15 years old. In addition in recent years the unprecedented high loss of life and property involved both tankers and dry bulk carriers has prompted governments to seek policies which enforce safety standards. The World Bank has pointed out that the deteriorating safety record and critically over-aged status of the international fleet may have serious implications for future world trade (Bolitho, 1993). Many shipping industry representatives expect real freight rates to increase during the 1990s. But there is uncertainty about the extent and timing of the rise. This is causing concern for many in the coal business. This report highlights two main issues which will determine prices in the dry bulk shipping market in the 1990s. First, ship safety and the effect of more stringent enforcement of regulations concerning fleet operations, and second the effects of the cyclical nature of the dry bulk market related to a surge in demand.

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