The dry bulk freight index of the Baltic Trade Exchange declined to its lowest level in more than four months on Monday, due to the slowdown in the activity of small Panamax vessels, which dampened market sentiment.

The Baltic dry bulk freight index fell 2.2% or 44 points to 1,955 points on Monday, the tenth consecutive decline, and the lowest since July 29. The index measures the transportation costs of iron ore, cement, grain, coal, and fertilizers.

Petter Rishovd, Head of Commodities at Pareto Securities, said, "All agree that Panamax ships are the weakest at this moment."

The Baltic's panamax index fell 3.98% on Monday, and the average profit of this type of vessel fell to US$15,621. Panamax vessels usually carry 60,000-70,000 tons of coal or grain.

Arctic Securities pointed out that “The slowing of shipping activities before the holiday (20.37, -0.38, -1.83%) is normal.”

Cold fronts in southern China and heavy rainfall in eastern Australia have disrupted the operation of major ports, causing delays in shipments and increasing queues for ships.

Cantor Fitzgerald said on Monday that “in our opinion, the Panamanian market was similarly weak last week, as floods and bad weather damaged the shipments of Australia’s eastern export ports.”

"At the same time, continued construction of new ships has led to a deterioration of the oversupply situation."

Brokers said that a modest recovery in the activity of Capesize vessels provided some support to freight rates.

The Baltic Shipping Price Index fell by 1.91% on Monday and the average profit fell to US$24,466.

The Baltic dry bulk freight index fluctuates considerably this year, which is the same as in 2009, as China's demand for iron ore fluctuates. The index reached a high of 4,200 points this year in May.

The Baltic's supramax index fell by 1.92%.

Brokers said that the market will raise interest rates in China, because it will lead to slower iron ore import and shipping activities.

Analysts said that shipping costs are expected to be under pressure in the coming months, as there will be a large number of new ships launching in 2011 and 2012, although there are indications that some of the vessel construction has been cancelled and postponed.

Oppenheimer said in a report, "In addition to continuing supply pressures, the slowdown in vessel hire before the end of the year generally affects most dry bulk markets."

"We expect the freight rate will continue to fluctuate in the coming quarter, as the wave of supply of ships will offset the strong demand outlook."