In recent days the Baltic Exchange's main sea freight index, which tracks rates to ship dry commodities, has fallen to its lowest since early February 2009 as a surplus of vessels has been exacerbated by delivery of new ships ordered before the 2008 economic turmoil.
Coal buyers in India and Europe say they want even lower shipping rates before they take on new cargoes.
Freight rates are vulnerable to any shifts in supply or demand of thermal coal, iron ore and grains -- the top three bulk commodities.
"Freight is so low, it's unbelievable. But they could go lower, and if coal prices stay at around these levels or are a bit weaker, then we will be ready to buy," one major Indian coal trader said. Indian traders account for the bulk of the country's coal imports.
Flooding in Australia compounded by weather-related problems in Colombia, South Africa, Russia and Indonesia have all disrupted coal shipments and pushed up prices.
Coal prices reached one-year highs in early January and have since have fallen around 12 percent to stabilise at $115.00 a ton, but buyers looking at the coal-plus-freight delivered cost say one or both need to fall further to give them any profit margin.
In Europe, "many of us (utility traders) are delaying new coal and freight orders because we're expecting prices to drop further as the effects of Australia's floods are priced out of coal, and as the vessel oversupply in the freight market keeps depressing rates," one European utility trader said.
Short Term VS Long Term
Other industry sources also said that delaying booking coal or freight would only pay off in the short term.
"In an $8,000 a day market, and I can't see any reason for it not to keep falling, why wouldn't they wait?" one shipping source said.
Average earnings to hire a capesize vessel slid to $6,177 a day on Friday, their lowest since Dec. 11, 2008. That compared with $34,795 a year ago and over $200,000 before the global financial crisis in 2008, Baltic Exchange data showed.
Capesize vessels, typically used for hauling 150,000 tonne cargoes such as coal and iron ore, have seen the sharpest rate falls so far, and the outlook is bearish for coal freight due to a combination of factors.
"BIMCO assess that freight rates for capesize vessels are likely to remain depressed in coming months - at least, supply-side pressure being the dominant factor in the supply-demand equation," said Peter Sand, shipping analyst with ship association BIMCO.
In the longer term, however, demand is building and will reach a point that coal shippers have to come back into the market.
"Quite often you get these hiatuses in the market where charterers will hold back waiting for the freight rates to drop, but eventually all you are doing is building up a latent demand, which will just drive a spike in freight rates when everybody comes into the market," said Mark Williams, research manager with broker Braemar Seascope.
Rhine, Chinese New Year
In Europe the closure of the Rhine to barge traffic has been an additional factor dissuading utilities from spot purchases.
Shipping on the Rhine, a major route for France, Switzerland and Germany for coal, grain, minerals, and oil products such as heating oil, has been disrupted since Jan. 13 for salvage work on a capsized sulphuric acid tanker.
The river was partially opened on Friday after being completely blocked earlier in the week.
"It makes no sense for us to place orders before the Rhine has been reopened for shipping, and the queue is cleared," the utility trader said. "And given the deflationary freight and the easing coal market, waiting seems to be a good money saver as long as we don't run out of stock."
In China, a slowdown during the lunar New Year will further erode an already weak level of
