Volatility of freight rates surged to an average of 138% in November

As bulk commodity supply ramped up.

Dry bulk freight rates have experienced a sharp rise in volatility in recent weeks as bulk commodity supply has ramped up.

According to a report by SGX, the 30-day annualised volatility of the Baltic Dry Index has surpassed 50%, versus a Q3 average of 37%. This spike in volatility has been primarily driven by Capesize rates, with the Baltic Capesize Index 30-day annualised volatility averaging a staggering 138% so far this month. 

Year-to-date, the benchmark iron ore price has fallen 48% while thermal coal prices have also steadily declined through the course of the year. Freight rates meanwhile have been extremely volatile, but on average holding well at higher levels. As a result, freight rates have become a much more significant component of delivered iron ore and coal prices.

Sharp declines in iron ore and coal prices coupled with rising freight rates have increased the relative importance of freight rates and freight rate volatility.

The dry bulk freight market is subject to severe seasonality, and recent price hikes are indicative of that. Looking forward though, there remains significant uncertainty over the coming months and quarters.