Freight Rates Foundering

On summer afternoons, Greek shipowners gather at coffeehouses near the port of Piraeus, where they read their fortunes in the grounds at the bottom of their cups. In recent years, the grounds have spelled out nothing but good news. Since the Six-Day War of June 1967 closed the Suez Canal, shipowners everywhere have been riding the crest of a seemingly endless wave of profits. Last winter freight rates rose so high that many owners of bulk carriers and tankers became millionaires almost overnight.

This summer the coffee grounds have been telling a different tale. Since January, freight rates have dropped to their lowest levels in 14 years, sending many shipowners scrambling just to keep even with loan payments on their vessels. Off Piraeus, 250 merchant ships lie at anchor, mute testimony to the inability of their owners to find cargoes. Similar scenes of placid but unintended idleness can be found at anchorages throughout Europe.

Tied to Japan. Rates have collapsed because there is a surplus of ships on the world's trade routes. And the surplus underscores the fact that the international shipping business is inextricably tied to the fortunes of Japan, which now faces a slowdown in its economic boom. At the heart of the problem are the Japanese steel mills. Japan is the world's third largest producer of steel, but virtually all of its iron ore and coal must be shipped in from mineral-rich countries abroad.

Since 1965, Japanese steel production and the corresponding coal and iron-ore imports have grown at an average 11% per year. Unable to meet the coal and ore import needs of the mills, Japanese steamship companies began chartering extra tonnage from foreign shipowners. As a result, almost all freight rates were pushed skyward. At the peak of the boom in 1969, the steamship companies were chartering Greek and Norwegian vessels to haul coal from Hampton Roads, Va., to Japan for the hungry steel mills at rates that gave the shipowners profits of as much as $10,000 per day.

What nobody foresaw was that, largely because of a slowdown in capital spending and a rise in interest rates, Japanese steelmen would suddenly encounter rough weather. In January, they revised their forecasts: no increase in production for either fiscal 1971 or 1972. Almost immediately, the shipping companies were left with millions of tons of excess ships that they had chartered, and freight rates plummeted. To cut their losses, companies offered to recharter their vessels to other shipping firms at bargain-basement prices. One company in a large Japanese commercial group, for example, chartered a 54,000-ton bulk carrier late in 1970 at $3.75 per ton per month; in June, the company subchartered the vessel to a British firm at a monthly rate of $1.35 per ton. To the Japanese company, the deal could mean a staggering monthly loss of as much as $129,000. In London and New York such money-losing subcharters are accounting for a large part of the shipping deals now being made.

Crisis Needed. Shipping men expect that freight rates will stay at their pres-ent depressed levels well into 1972. By that time, enough tonnage will have been taken out of service, and the factors of supply and demand will settle into balance once again. In the meantime, more than a few shipowners grudgingly agree with the Greek shipping journal Naftiliaki, which cynically observes: "What the markets need at the moment is some political crisis that would send a shiver down the spines of charterers and leave them scurrying for any available tonnage."

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