Coal has been a key driver in the recent freight boom.
China’s set to import record volumes of the commodity to curb rising prices.
The Baltic Dry Index is at a level it’s only hit three times before.

The Freight Market Bonanza of 2021

The Baltic Dry Index (BDI) has hit 3,250 points once again, a level it’s only managed to trade above three times before.

This recent rally has been attributed to a commodity that’s supposedly the energy source of yesterday: coal.

More than any other commodity, coal has been the single largest influencer in igniting the recent boom in freight.

Leading freight analyst, Jeff Landsberg, pointed out that whilst many outlets viewed Chinese Official comments about curbing rising material prices as bearish, the key point was missed. In order to combat rising coal prices, due to coal-derived electricity generation outstripping domestic coal production in 2021, China will import record volumes of the commodity.

In announcements this week, Chinese Authorities confirmed that a further 100m tonnes of coal will be stockpiled and then periodically released into the market to ease surging summer demand spikes. The freight market in 2021 has seen China source coal from sources much further afield, such as Colombia, who in the past two months has supplied over 800k tonnes of the commodity. This is more than Colombia would usually supply in a year. With this pattern of imports being relied upon by China, the freight market has seen its vessel utilisation rocket accordingly.

With traditional supplier Australia still out of favour as a Chinese coal source, far flung Colombia and Russia chew up vessel miles and compound demand for dry bulk vessels.

As industrial activity remains robust and coal-fired trade hostilities remain, vessels are called upon to travel farther, and load more cargo at less efficient ports, poorly equipped to handle such volumes.

As this irrationality persists, freight rates should press on at record highs.