Dry-bulk ocean shippers like Genco Shipping & Trading (GNK) have had a heck of a week last week. As you know, it began last Tuesday when dry-bulk futures rates fell 13% for 2008 bookings on Capesize ships. This caused a chain reaction in other rate classes as stop losses were triggered. But the damage was kept to a minimum due to the overall strength of the market for dry freight. Even with the pullback, Capesize rates are still up 170% in 12 months.

The volatility in the freight futures, though, led to price volatility in the shares of the dry-bulk shippers, as late-coming momentum traders got spooked.

The most likely explanation for the erratic trading behavior in the freight futures market was some tough talk out of China. According to a spokesperson for the China Iron and Steel Association, China's steelmakers intend to resist price hikes on shipping iron ore going into next year due to declining profitability. This was bad news for dry-bulk freighters like Genco that have made a mint by shipping iron ore from Australia to China as demand has soared.

Normally, communist bureaucrats in China can dictate the terms on which their economy operates. But once they decide to participate in the global marketplace, they become supplicants to the same supply/demand pressures as the rest of us. No exceptions, regardless of your economic regime of choice. So unless the Chinese steelmakers are prepared to idle their factories, they will have to pay to ship in iron ore from faraway lands like Australia or South America. Furthermore, they will be subject to the 25% to 50% iron ore price hike expected over the next 12 months. Therefore, this recent blip shouldn't have a long-term effect on the dry-bulk shipping industry because emerging nations, like China, are going to continue to need commodities floated into their countries and will ultimately have to deal with any price hikes that arise.