Boatbuilders watch their ship come in fuelled by Asian commodities

Profits rocket as demand for iron and coal push maritime market to new highs

Shipowners were celebrating more records last night as booming trade volumes with China - and increasingly India - brought unprecedented demand and a shortage of vessels.

The London-based shipping market - the Baltic Exchange - confirmed that its dry bulk index that tracks the cost of shipping commodities such as iron ore and coal, had hit an all-time high at 99,215 points, up 133 points on the day. The "time-charter average" of daily hire rates for capesize vessels had hit an unprecedented $156,977 (£78,000) up $3,971 over the last 24 hours.

"The records are beginning to be broken on an almost daily basis," said Jeremy Penn, chief executive of the Baltic. "It is absolutely booming and almost beyond explanation."

Shipowners are so desperate to meet demand that some have started to convert oil tankers into dry bulk carriers while others are taking advantage of escalating values by buying and selling vessels still under construction.

"We saw a new capesize bulker ordered from a shipyard last February at $82m for delivery in 2009, re-sold before any work had started on it in April for $92m and then sold again three months later for $120m," says Alan Marsh, chief executive of London-based shipbroker, Braemar Seascope.

The upsurge in activity - which has not been seen in the tanker market - comes as grain and other commodities have also hit record highs in recent days.

Australian wheat futures hit a record high of A$492 (£212) a tonne on Monday as dry conditions threatened to damage the country's harvest while gold hit a 28-year high of $739 per troy ounce on Friday and oil reached a new $80 a barrel peak last week as equities and financial markets have been under pressure.

The commodity sector has been a big winner from globalisation but that trend is hardly new for a shipping industry that has been carrying goods around the world for centuries. The big difference in the latest boom is that it has enabled shipping to break out of more recent patterns which tended to give it two good years followed by two bad ones as shipowners overbuilt during the upturn.

The current bonanza has already lasted more than seven years and brokers have recently reported capesize bulk carriers being chartered for $120,000 a day for 12 months, the kind of rate previously associated with very short term hires. Sky-high freight rates are expected to continue for the next year.

Mr Penn said it was not always easy to explain why rates just kept going up despite a slew of new vessels.

"It's partly sentiment, but clearly also physical demand from China and India combined with port delays and the changing dynamics of the grain markets," he explains, referring to failures of the Australian crop harvest and the diversion into biofuels.

But the dry bulk bonanza is not currently matched by similar conditions in the oil tanker markets despite crude prices soaring above $80 a barrel. An overbuilding of tankers and changes in oil transportation patterns have led to a slump in demand for super tankers.

But the wider maritime boom since the turn of the century, which has also affected the container vessels which carry cargoes such as refrigerators and televisions, has helped shipowners make a lot of money and also rewarded a growing group of institutional investors. There has been an enormous increase in the number of shipping companies listed on the stock market after a long period when shipping was discredited by defaults in the junk bond markets after a 1990s freight downturn.

London has seen only a relatively small number of new flotations - Braemar being one of them in 2001 - but New York has been at the centre of a major rush to market by companies often from traditional maritime countries such as Greece and Norway which still dominate the operating sector.

Hamish Norton, head of maritime investments at Jefferies & Co, one of New York's most active shipping banks, said the number of stock-listed shipping companies in America had tripled since the turn of the decade and there were still offerings on the way despite turbulence in the wider markets.

In previous periods investors have come into shipping during the good times and fled during the bad, but Mr Norton believes the scale and confidence of the shipping sector now means that trend might be over. "People may reassess the valuations if prices drop in a down cycle but still I think they will be there to buy and sell as opposed to liquidity drying up completely," he says.

Another big change over the last 10 years has been the development of a paper market. Freight futures have become big business and sucked in many of the major investment banks such as Morgan Stanley which has encouraged it to go further and buy companies such as Heidmar and its fleet of 80 tankers.

The build-up in trade in east Asia has encouraged the rapid formation and growth of Chinese shipping companies which have also used the stock exchange to raise cash for fleet expansion. China has also taken a leading role, building new vessel construction facilities and is aiming to become the biggest shipbuilder in the world by the turn of the century, pushing out South Korea and Japan for the top slot.

Braemar says one of the advantages of improved image and conditions in the shipping markets is that it is far easier to recruit new staff. In the past young graduates flocked to merchant banks, now they seem to be looking at alternatives, especially those sectors which still have a bit of glamour and fun, as well as money associated with them.

Mr Marsh explains: "Many City workers seem to never go home, whereas we like people to work hard but play hard too. If you go to lunch with your bank or lawyer the only choice you are likely to get offered is 'sparkling or still?' When you come here we still have a decent bottle of wine."


Daily hire rates for capesize vessels peaked at this figure, up by $3,971 in just 24 hours


A capesize bulker was bought for this amount and due for delivery in 2009. It was resold for $120m a few months later before work was started on it



Term given to super-sized vessels that are too big to navigate the Suez and Panama canals and therefore have to go round either the Cape of Good Hope or Cape Horn

Dry bulk carriers

A cargo ship that is designed to ship commodities in large quantities which do not need to be packaged. The main cargoes shipped by dry bulk carriers are iron ore, coal, bauxite, phosphate, nitrate and grains such as wheat. A wet bulk carrier is more commonly known as a tanker


An intermediary between two parties in a shipping contract, whether they are shipowners and charterers, or buyers and sellers. Brokers also conduct nearly all second-hand ship purchases

Junk bond markets

High-yield debt by issuers with weak credit ratings which carry a greater risk for investors because they are seen as more likely to default. They became popular in the 1980s, especially in the US, where they were frequently used to fund the craze for private equity buyouts. The market collapsed in 1990 when defaults started to rise

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