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Coal producers seeking to export coal, par- ticularly in Panamax and Handysize vessels, have seen almost six years of steady low ocean freight rates. Slight improvements have occasionally occurred in Capesize rates, almost always driven by sporadic jumps in Chinese iron ore demand. Except for a few short-lived price surges in the win- ter of 2011-2012 and again in the winter of 2013-2014, daily rental rates for Capesize vessels have struggled to average more than $10,000 per day. As Table 1 shows, 2014 has reported several slightly improved rate bumps, perhaps causing daily rates to aver- age about $15,000. Panamax daily rates, on the other hand, have averaged in the $10,000 range since September 2010 (the last time they exceeded $20,000). These val- ues are dangerously close to what many shipowners would call lay-up cost. The same vessel that carries coal may also carry grain or iron ore, so a high demand for ves- sels to carry iron ore or grain may cause a shortage of vessels to carry coal. Thus, the interaction of seemingly unrelated com- modities may affect coal rates. According to R.S. Platou Economic Research, a five-year- old 172,000 deadweight-tonnage (dwt) Capesize is currently assessed at a value of about $47 million, and a five-year-old 74,000-dwt Panamax is assessed at a value of about $23 million. Simple mathematics shows why shipowners get concerned when daily rates are so low. It is interesting to observe that during the "trough" of 2012 rates, Glencore literally paid nothing to hire a dry-bulk ship, with the ves- sel's operator paying $2,000 a day of the trad- er's fuel costs after freight rates plunged to all-time lows. Glencore chartered the vessel, operated by Global Maritime Investments (GMI). The daily payments lasted the first 60 days of the charter. The vessel hauled a cargo of grains to Europe, putting the carrier in a better position for its next shipment. GMI paid Glencore as the Panamax-sized vessel traveled from near the coast of Yosu, South Korea, to Australia to load grain, reverting to a daily rate linked to a Baltic Exchange index level once the 60 days expired. Why would any shipowner agree to such a deal? At that time, the excess of vessels in the Pacific drove daily rates to almost record lows, a condition that lasted 10 months before a short-lived surge in Capesize rates provided some hope of relief. GMI's other option was to stay in the Pacific and earn poor revenues or ballast to the Atlantic and pay the fuel themselves. (Ballasting refers to sailing without a cargo.) Other owners and operators of vessels paid as much as $50,000 a day in fuel to travel to ports to win work, or why they agreed to rates at zero cost as daily rental rates fell to record lows. Charters for the so-called backhaul routes that reposition ships to the Atlantic Ocean region from the Pacific fell to the lowest since Baltic Dry indexes started. Rents for Capesize ships that haul ore and grain on backhaul routes were at minus $7,342 a day, the lowest since that index began in 1999, Baltic Exchange data shows. Details about the ship hire were included in a list of vessel charters published daily by the Baltic Exchange, the London-based assessor of freight costs. Coal Rates It is a misnomer to talk of rates as if they apply strictly to coal, but we do it because our focus is coal. Charterers, notably coal 24 www.coalage.com December 2014 t r a n s p o r t t i p s Ocean Freight Rates Remain Low B Y D A V E G A M B R E L Source: DryShips Table 1: Daily Rental Rates for Capesize and Panamax Vessels, 2014