By Kim Yoo-chul
Staff Reporter

Korea's shipping industry is starting to feel the "domino effect" of the financial crisis that originated in the United States.

"The plunging Baltic Dry Index (BDI) is weighing upon us. We don't have any plan to stop operating our bulk carriers for the time being. The situation is truly bad," an executive from Hanjin Shipping said, Thursday.

The BDI, the most closely watched measure of shipping costs for commodities, fell to a record low of 925 ― the lowest level in six years ― from its peak of 11,793 in May, caused by the sharp fall in demand for cargo, according to industry sources.

The index tracking transport costs on international trade routes also fell 47 points, or 4.1 percent to 1,102 points ― the 15th consecutive session of decline and its lowest level since September 2001.

Before the crisis, the dry bulk sector was hopeful that it would see market activity recover quickly.

Korean shippers had strongly believed that the demand in emerging markets was still strong and the drop in Chinese iron ore and coal imports would affect cargo demand only temporarily.

But the wide-spreading global credit crunch has turned out to be far greater than the cargo industry's previous perceptions.

"Some mid-sized shippers are virtually in a panic as soaring material costs and deepening global crisis are cutting demand for bulk carriers," said an official from STX Pan Ocean, adding the simple explanation for the collapse of the index was the freeze in financial markets in response to the global credit crunch.

Industry watchers and analysts say it will be difficult for Korean shippers to increase their operation in bulk carriers delivering iron ore, coal, grain and other raw materials due to the bearish moves of the BDI.

"The sliding BDI will hit STX Pan Ocean in the fourth quarter. The number of operating bulk carriers decreased to 400 as of the end of September from 460 in the second quarter," Lee Won-jong, an analyst at Hanwha Securities said.

Although some bigger local shippers, which have been experiencing good business over the past four years, are planning to maintain flexibility in their operation of container ships and bulk carriers, it is highly unlikely that the freight rate will rebound sharply, analysts said.

"Reduced iron ore shipments by global steel producers is also pressurizing bulk freight rates. Lack of confidence has in turn hindered global trade transactions," said the Hanjin executive.

yckim@koreatimes.co.kr