Thanks to Pratheesh Karthikeyan a reader of this blog for this question – “What is a distressed cargo“..
Distressed cargo is a term used more in bulk trades and a cargo is termed distressed cargo when :-
- A buyer defaults on a contract due to a drop in commodity prices.. Say for example, if a buyer entered into a spot contract for the purchase of coal and after loading, if the prices have fallen around $10/tonne, on a capesize ship, a client could lose as much as $1.6 million and rather than lose so much money due to this drop in price, the buyer defaults on the contract..
- When a seller or buyer has left it too late for execution of the trade under normal vessel and product scheduling time frames..
- A ship is unable to offload a cargo at a specified port due to bad weather and have to sail from that port within a specified time frame to honour their other employments which means they have to classify the cargo as distressed cargo and try to get rid of it before they reach their next port..
Such distressed cargo is generally sold to interested buyers at prices much lower than the original price of the commodity.. To avoid cases like buyers reneging on contracts, prudent shippers may insist on the full price being paid in advance before loading of cargo commences..
Apart from distressed cargo, there is also possibility of “distressed freight” which happens when a ship arrives at a berth to load cargo, only to find that the the cargo supplied by the shipper does not meet the expectation/specification of the owner’s or charterer’s.. Due to time constraints, the owner’s or charterer’s may not be able to secure enough cargo at the normal freight rates to fill the ship and may have to book cargo at very low rates also known as distress rates..