Bulk Freight Rtaes Under Pressure
WASHINGTON - May 2/13 - SNS -- Bulk conventional ocean freight rates are expected to remain relatively stable as demand for space is expected to remain behind the supply, according to a analysis by the USDA's Agricultural Marketing Service, published in the Grain Transportation Report.
Excess vessel supply and lagging demand for bulk shipments are keeping ocean freight rates for shipping bulk commodities -- including grain -- moderately low, the USDA said. Its analysis continues as follows:
Although robust, orders for newly built vessels are lower than in recent years. During the first quarter of 2013, ocean freight rates for shipping bulk grains from the U.S. Gulf to Japan averaged $46.73 per metric ton (MT) -- 7% less than a year ago and 10% less than the 4-year average. It costs about $24.84 per MT to ship grain from the Pacific Northwest (PNW) to Japan -- 12% less than a year ago and 16% less than the 4-year average. The cost of shipping from the Gulf to Rotterdam (Europe) was $19.57 per MT, 2% less than a year earlier, and 8% less than the 4-year average. The spread between the Gulf and PNW rates, at $21.89 per MT, was 2% lower than the 4-year average.
The bulk vessel fleet has grown during recent years, making it difficult for the lackluster demand to catch up with supply. During 2012, the dry bulk fleet grew by 70 million deadweight tons (mdwt). As of December 17, 19.5 mdwt capacity of Panamax vessels were delivered by the shipyards, compared to 15.4 mdwt in 2011.
The total dry bulk fleet is expected to grow by 6% in 2013. Currently the global dry bulk operating fleet as of March stands at 687.7 mdwt capacity, compared to 625 mdwt in March 2012. During the same period, the total capacity of Panamax vessels increased from 106.3 mdwt to 108.8 mdwt. Although the rate has slowed, owners are still placing orders for new deliveries.
About 126.86 mdwt capacity of new dry bulk vessels are scheduled for delivery between now and 2016 -- 18.4% of the existing fleet. During the same time a year ago, the scheduled delivery from 2012 to 2015 represented 31.9% of the existing fleet.
Other factors that contribute to the low ocean rates include weather disruptions in Australia, labor disputes in several countries, and an indefinite strike at the largest Colombian thermal coal exporter. The labor strike reduced Colombian coal exports by 53% in February. Heavy rainfall damaged some rail networks, reducing Australian coal exports by as much as 19% at four major ports in Queensland in January.
Market Outlook
As of April 26, the cost of shipping a metric ton of grain from the U.S. Gulf to Japan was $46.50 -- 14% less than a year ago. The cost of shipping from the Pacific Northwest was $24.50 -- 20% less than a year earlier. The rates may be lower for the foreseeable future due to many factors that play into market dynamics. Although orders for newly built vessels have slowed, scheduled deliveries until 2016 are still strong. In January, two major Japanese shipyards merged, creating the potential for economies of scale in providing a wide range of vessels. In addition, shipyards are lowering their prices to lure owners to place more orders.
Movements on the demand side of the market have been mixed which, along with the excess supply of ships, contributes to lower prices. Unfavorable weather forced Argentina to lower its wheat production estimate from 10.5 million tons to 10.1 million tons. As a result of a shrinking international profit margin, Indonesian thermal coal traders have turned to domestic markets. These scenarios may reduce the demand for Panamax and Supramax vessels in the regions, which will further depress the ocean freight rates.
However, some market indicators are signaling a potential increase in bulk trade, which may force an uptick in ocean freight rates. In January, the India National Mineral Development Corporation announced a 6-percent reduction in the price of its lowest quality iron ore. The government also planned to promote exports of some minor bulk commodities, such as sugar, to prevent a further fall in commodity prices. Chinese steel mills are also restocking iron ore, and there are hopes of recovery in Colombian coal output during the second quarter.
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