February 28, 2013 Leave a comment
The Clarksea Index hit an all-time low last week when it fell $223/day to $7,111/day. Of course, shipping slows down each year with the arrival of the Chinese New Year, when the whole country closes down and everyone goes on holiday. Each year, as China’s influence on shipping has grown, so has the impact of the holiday. This year the difference between the last working week and the first week of the holidays was a drop of -2.74% in the Clarksea Index. This is a relatively small amount compared to the last five years (see chart), but then there is little fat left in the Clarksea Index, which has already lost nearly 20% of its value since the start of 2013.
This begs the question how low can the Clarksea Index go? The Clarksea Index is made up of the average weekly earnings of the main shipping sectors weighted by the number of vessels in those sectors. Generally, the diverse sectors tend to balance one another out. A bad week in VLCCs can be cancelled out by a good week for the Capesize or the VLGCs. This can lead to steep falls. During the Boom the Clarksea Index fell over $5,000/day in one week in early 2008, but this only brought it to $37,606/day and few heeded the warning sign.
We are a long way from those heady days, and the Clarksea Index, which is the heart rate monitor of the industry, is now worryingly low. My gut feeling is that $6,000/day is the lowest it could possible go. However, it is not usual for individual routes to go into negative earnings, pulling down that sector. Last week, for instance, the VLCC route Middle East Gulf (MEG) to Europe and MEG to US Gulf fell to Worldscale (WS) 18.0 and WS 18.5, respectively. If any VLCC was to fix at these rates the equivelent earnings per day are a loss of around -$17,000/day. The tanker sector is not the only one showing negative earnings last week. Some of the Capesize routes and Panamax dry bulk routes went negative. Fortunatley this downward drag was halted by buoyancy from the gas sector (pun intended). But in theory it would be possible for enough routes to post negative earnings for the Clarksea Index itself to go negative. Then the Year of the Dead Duck will be upon us.