U.S. Rail shipments drop

Traffic World publishes an article tomorrow detailing the big drop in rail shipments.

Bulk commodity and equipment cargoes carried in large-capacity railcars fell 8.4 percent from a year earlier for major U.S. carriers in the week that ended Nov. 8, said the Association of American Railroads.

That is only one week, but it follows a 5.4 percent year-on-year drop the week before and 4.7 percent before that. The carload decline has only escalated since the September financial crisis began rippling through the overall economy.

Bulk cargoes almost always move by rail. That has been the traditional rail cargo.

Railroads also carry trucks, or containers. That is called intermodal. This too has slipped.

A similar trend is at work on the intermodal side, where rail lines handle the long haul for highway trailers or containers that trucks carry from rail terminal to final destination.

The AAR said those U.S. rail lines saw intermodal loadings shrink 6.3 percent in the latest week, 4.9 percent as of Nov. 1 and 4.1 percent for the week ended Oct. 25.

There is no mention if truck traffic dipped during the same period. With the price of gas going down, it's possible some of this business switched back to over the road.

"Knock-for-knock" is not a joke

Ocean Heavylift has vessel seized.

When I first read this headline, I assumed it was for unpaid debts.

Well, it is in a way. But not so much unpaid, as a legal dispute.

The short version is, the ship lost cargo overboard. A liftboat. The owners of the liftboat believe the ship is responsible for their loss. The owners of the ship say no, because they have a "knock-for-knock" provision in the contract.

I had never heard of knock-for-knock provision before. Basically it says each party insures their goods, and does not claim against the other, even if the other is at fault.


Here is a proper definition of Knock-for-knock

But, back to the ship being arrested. With all the financial turmoil, it is possible that ships will start being arrested for unpaid debts. This is something to always consider when doing business with a carrier. Nothing worse than having your goods on a ship which gets arrested.

DryShips

I found an article called "The Golden Fleece", written in 2005 regarding the issuing of Dryships stock.

It starts out like this:

Dryships’ Debut Shows Speculation,Liquidity Trumping Experience
“It was surreal. When someone asked why he was doing the deal, here–now, he actually said, basically, ‘Because Americans are the dumbest investors around, and there’s lots of liquidity in this market.’”

If you don't own DryShips stock, read the article. It is quite amusing.
If you do own Dryships, well, you might want to skip it.

When I read the comments posted on Google financial, concerning this stock, I too question the intelligence of American investors.

I have looked at the reports filed with the SEC by Dryships, but honestly, I can't figure much out. I don't know at what values they have the ships declared. If they valued them high, and borrowed against them, then it's going to get pretty bad.

If they valued them pretty much at cost or market when the stock went public, and haven't increased their value on the books, they might be able to stick it out over the next year.

Of course, don't forget, there is always the chance this stock could go down to pennies and someone buy out the company, leaving the shareholders with very little.

Baltic Dry Index - Nov. 19 report

Here is the report from the Baltic Exchange for Nov. 19 (I am not allowed to publish the ones from the 20th yet).


Baltic Indices 19/11/2008 BDI 859 (-6) BCI 989 (-5) BPI 978 (-34) BSI 606 (+17) BHSI 310 (+4)

So, the rates for Capesize ships went down a little, Panamax are down a lot, but the good news is both the Supramax and HandySize are up.

I don't really know if that is a blip or a trend. Could be the market is hitting it's bottom.

I suppose there is a chance the Capesize ships are not down as much as the Panamax if owners have decided to route their ships via the Capes anyway, due to all the pirate problems. Or,it could be because of insurance. I don't know the rates, but would guess if you are transiting the Gulf of Aden, the insurance costs have gone up considerable.

click here for previous post explaining categories of the Baltic Exchange

So much for Baltic Exchange motto "Our word our bond"

I won't say panic is setting in amongst owners of bulk carriers. It's more like they are really, really mad.

They had a cozy little club for a couple of hundred years, everything being done on a handshake. The motto of the Baltic Exchange is "our word our bond", but in today's Lloyds List article it incorrectly (or maybe more correctly) calls it "my word is your bond".

This is my take on this problem.

Companies involved in chartering ships normally acted on behalf of the owners of cargoes, or perhaps a carrier. Generally they would have some cargo in mind to transport. Sometimes they would speculate and take ship on long term charters, depending on if they thought they could make some money. Some companies were in the business of ship management, and maintained owned and chartered ships in their fleet.

Then the freight derivatives and freight forwarding contracts started. The first FFA was established in 1997. I remember at the time these were established I thought it was rather strange. But, it's a bit like someone buying or selling future contracts of commodities. If someone knows they will need a ship at a particular time, it's a good way to guarantee the price.

Then the speculators got involved. I recall one comment by a ship owner. There were something like 20 contracts after the initial one, driving up the price 10 times. The ship owner did not benefit from the price increases, and in the end some of the in between parties defaulted and the ship owner was left holding the bag. Not very fair. Or nice. Certainly not in the spirit of "our word our bond".

Now the ship owners want to put a stop to all this speculation. There is some talk of no longer publishing the index of charter rates for dry bulk ships, the BDI. That would take it back to the owners doing business with only those they trusted, and only those who really were in the business.

The owners blame all the outside speculation for wrecking their market, and I can't say I blame them. Owners needed the huge profits in order to weather the upcoming down years.

I am guessing some hedge funds got involved, looking at this as a quick way to make some money. I do not know this for certain.

And, if you haven't figured it out by now, this market is not regulated.

Pirate mothership sunk

News of the Somali pirates is all over the mainstream media, but thought I would post it here anyway.

The Indian Navy sunk a suspected pirate "mothership".

Good for them.

Understanding the BDI (Baltic Dry Index) Part II

I started working on this project in a blog last week. I'll try to get a bit more done today.

First off, someone pointed out the article I referenced from Slate was from 2003. I thought it was from 2008. Guess it's time to get my eyes checked.

Also, in my last blog I included the BDTI and BCTI as part of the BDI, but as this is the dry index, and BDTI and BCTI covers tankers, they should not be in the mix.

Here is what makes up the BDI - (Baltic Exchange Dry Index)

It's daily assessments from various selected charter brokers of the previous days "fixtures" (chartering contracts), for 4 sizes of dry bulk ships (listed below). Bulk, meaning the cargo is not in containers. Generally it's coal, ores or grains.

Capesize BCI (Baltic Cape Index)

Vessels which must transit via the Capes. (Time to get out the world map).
Either the Cape of Good Hope, which is at the tip of Africa, or Cape Horn, which is at the tip of South America. These ships are considered too big to fit through the canals. Some may be able to transit the Suez, depending on their draft (meaning, how deep of water they require), which varies depending on how much cargo they have onboard.

Panamax BPI (Baltic Panamax Index)

Vessels which can just fit through the Panama Canal. Actually, I find this term misleading, as it would seem to mean they are too big for the canal.

Supramax BSI (Baltic Supramax Index)

These vessels use to be called Handymax, but for some reason in 2005/2006 the Baltic Exchange changed the term to Supramax (I do not know why). These vessels are smaller
than Panamax, but bigger than Handysize.

Handysize BHSI (Baltic HandySize Index)

These are the smallest of the dry bulk vessels and are very versatile. They are small enough as to be able to get into any port.


Here is a link to Vessel Size Groups which gives more detailed information. However it based on categories from 2000, and therefore does not have the Supramax category.