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Mixed prospects in freight markets following slump in prices

11 Apr 2019

Freight markets slumped earlier this year as disappointing spot demand and concerns about weakening global economic growth dashed expectations for a strong start to the season. The Baltic Dry Index (BDI), which is a benchmark for costs across dry bulk segments, slid to its lowest in around two and a half years in February. Despite a slight recovery since then, the Index was still 38 percent lower y/y as at late-March, reflecting a market which continues to grapple with overcapacity. In a longer-term perspective, the Index remains well below historic peaks of a decade ago.

Although prices for ocean transportation of grains and oilseeds displayed a somewhat steadier tone they, too, fell sharply in 2019. Prices stabilised or advanced recently, led by Brazil, which saw particularly strong soybean shipments. However, overall prospects for grains/oilseeds freight markets across key exporting origins remain mixed, in part because of variable trade forecasts.

Whether the current positive momentum in the grains and oilseeds carrying sectors is just a short-lived correction or the beginning of a longer-term trend remains to be seen. Sustained flows could support a recovery, however values remain vulnerable to periodic shifts and volatility amid persistent headwinds. These include the sector's overcapacity; geopolitical uncertainties; costs associated with forthcoming low emissions regulations; and deteriorating macroeconomic conditions in many countries.