In the third quarter breakbulk freight rates are still flirting with historic highs. China’s been the key player, but shipping analysts are troubled that a slumping US economy has set into motion events that will burst the breakbulk bubble in 2008.By George Lauriat, AJOTThere is little doubt that over the past three years the dry bulk/breakbulk market has been hot. To put it into a little perspective, back on November 1st 2002, the Baltic Dry Index (BDI) - a composite index of dry bulk shipping freight rates - was bumping along at a mundane 1,435. At this writing (11-02-07), the BDI hit 10,548, and has been over 10,000 since October. The record ascent of the dry bulk market has caught the attention of institutional investors that back in the 1990s would have been angling for the next hi-tech IPO (initial Public Offering) opportunity. In late September, Seoul Korea-based STX Pan Ocean Co., Ltd ‘s (STX Pan Ocean) issued global a offering raised US$628 million, making it Korea’s largest IPO this year. STX Pan Ocean has a fleet of a fleet of approximately 350 bulkships. In 2005 another bulkship IPO, Dryships was launched and has from around $18 per share to close to $90 per share, largely based on the overall performance of the bulk sector’s startling climb since 2004. Now these investors want in on the dry bulk shipping market and have made their presence, or their investment money, felt at the shipyard level (see orderbook chart). The interest in bulk/break bulk shipping is understandable. China’s seemingly unquenchable demand for raw materials for its export oriented industrial juggernaut, has soaked up dry bulk tonnage in all sectors from the smallest handy to the giant ore carriers. The shortage of bottoms, the longer distances between port of loading to discharge and port congestions at key loading facilities, has all combined to bolster dry bulk freight rates, so why are shipping analyst nervous that the bubble might burst in ‘08? WILL THE FOAM FROTH FIZZLE?The dry bulk sector is really a series of loosely interconnected commodity sectors. The greatest contributions come from iron & steel, coal, ores and grain but literally dozens of other sectors contribute. So it is really not one bubble that will burst with a resounding bang but rather a settling of foam from a dozen or more sectors – more like the foamy head on a glass of beer turning flat into suds. Thus far, the major sectors still look strong. Grains, iron & steel products and ores/minerals are all moving at a strong pace. But there are signs of a change, if not a slowing in the market. The weak US economy, specifically in the construction/housing market has dampened demand for building material, such as lumber that have been running extremely strong for the past five years. Equally, the economies in Europe and Japan are also slow. There is also the fear that with a soft US/Europe economy China’s exports will be diverted to satisfy domestic demand – a triple whammy of reducing both commodity/ship demand inbound & outbound, while stifling China’s imports of industrialized and semi-processed goods from the West and Japan. Right now the possibility of the triple whammy is still nothing more than an economists’ bad dream. MOL’s (Mitsui OSK Lines) research department estimates that the gap between ship supply and demand expressed in dwt (deadweight) for 2007-2010 period will range from 1.8% to 5% in favor of the ships bottoms – a miniscule percentage in real terms. It is not just MOL forecasting a strong performance in the bulk sector. Another Japanese mega-carrier NYK, recently released for investors a “Comparison of Financial Prospects” for FY (fiscal year) 2008 by industrial segment. In that report the bulk sector was revised upwards from ¥895 billion to ¥990 billion. But the big change was in dry bulk which was revised upwards from ¥775.5 billion to ¥886 billion – or a huge ¥90.5 billion above the original targets. US PORTS Although the US accounts for roughly 5% of the global bulk marke