Ship owners, especially in the breakbulk sector, are sailing in a sea of fear, with tumbling freight rates, contracts flexing like timbers ready to be broken and plummeting ship values that threaten to engulf those not strong enough to weather the financial uncertainty. Fear is born of uncertainty but uncertainty can also harbor opportunity.By George Lauriat, AJOTIn the time of Prince Henry the Navigator, Cape Bojador off the northwest coast of Sahara Desert of Africa was perceived as a barrier to exploration southward. It was sometimes called a sea of fear from which a man might sail over the edge plummet into the pits of Hell itself. Bulk ship owners might well feel that they have indeed fallen off the edge of the world and Hades is the next stop. The precipitous decline of the BDI (Baltic Dry Index) is unprecedented (see chart). On June 3rd the BDI was at 11,503 and at this writing on November 3rd, six months later it has fallen to 827. The slide is even more astounding considering even as late as October 3rd the BDI was over 3,000. What the slide means to ship owners is that their charters are fewer and worth less, their ships valued for less, their company share prices (if they are public) lower and even the scrap value of their vessels has fallen with subdued demand for steel. The drop in freight rates between the 3rd and the 4th quarters is frightening…a modern day kraken pulling unwilling bulk ship companies into the financial abyss. According to industry analysts Jefferies, in the 2nd quarter a Capesize (see size chart) loaded with iron ore for the route between Brazil and Rotterdam could command $184,769. In late September the tally amounted to $41,256. By October 3rd $36,989 and by the October 10th the rate had fallen $15,974. The news really isn’t good in any bulk ship sector. On September 29th Baltic Handy size index was 1,446 and by November 4th the index had fallen to 312. Similarly, the Baltic Panamax index was 2,957 on September 29th and on November 4th had crashed to 679. The susceptibility of all the bulk ship sectors to the global financial gyre has left many shipping pundits shaking their heads confused and bewildered by the rapid turn of events. It is a very rare occurrence indeed when all bulk shipping sectors (including liquid bulks) collapse simultaneously. Generally, one bulk sector or another is robust enough to weather the storm. This is understandable, as ship sizes and types, commodities and routes vary enormously building in a natural resistance to prolonged slumps. This is why many bulk ship owners prefer a portfolio of ship sizes rather than a concentration in just a single sector to even out the ride. So why did the bottom fall out of bulk ship market? BULLS, BEARS AND BUST The bulk ship market has historically been the home for the shipowners’ shipowner. A tough cyclical market were those steady hands on the tiller were the difference between staying in business and going under. In a sense it was almost a club of Norwegians, Danes, Greeks, and Hong Kongers that along with national entities serviced the business. There was little glamour to the business when compared with the containership side of the business. The complexity of cargoes and routes was far more demanding the tanker business and arguably more volatile. However all this began to change in the late 1990s when double digit economic growth, especially in Asia, in began fueling demand for raw materials. Bulkships were the key to supplying raw materials to support global growth. However, the bulk ship sector has historically been under-funded, as it has been easier to secure capital investment for new vessels in both the containership and tanker sectors. The new demand for raw materials, especially for steel making in China, caused the BDI to soar and bulk ship owners began making very substantial profits. The bulkship profits didn’t go unnoticed. The bulk sector profits stood out against the highly leveraged containership sector whose profit margins were slim despite yea