Ocean Freights Remain Low

WASHINGTON - Jan 22/15 - SNS -- Ocean freight rates could not get any upward traction in 2014, suggesting they should remain relatively stable for at least the first half of 2015, suggests a recent analysis by the USDA's Agricultural Marketing Service.

In the latest Grain Transportation Report, the USDA said ship owners "believed that 2014 was going to be a turnaround year in the bulk market, with increased demand for vessel capacity. Some market analysts had also predicted that demand for bulk vessels may eventually catch up with the supply. However, that expectation was not met as ship owners ordered more vessels in anticipation of a market turnaround. The increasing vessel supply, coupled with lackluster global economic growth, led to the continuation of excess vessel supply in the bulk market, which resulted in continued lower freight

Overall, the average ocean freight rates were lower in 2014 than in 2013 due to excess vessel supply and lagging demand for bulk shipments. As of December 2013, the bulk vessel fleet stood at 9,813 vessels (714 mdwt), and the orderbook from 2013 to 2017 stood at 1,685 vessels (135.8 mdwt). As of December 2014, the bulk vessel fleet stood at 10,323 vessels (755.6 mdwt), and the orderbook from 2014 to 2018 stood at 1,980 vessels (166.96 mdwt). The number of bulk vessels increased by 5% over the year, and the bulk vessel capacity grew by 23%.

"It is too early to predict what 2015 will look like in terms of ocean freight rates. However, it is safe to say that ocean freight rates will remain modest for a while until the excess capacity disappears. Coal demand from India is likely to continue rising because of falling domestic supply caused by de-allocation of coal blocks," the USDA said.

"Furthermore, Japan planned to build 28 new coal-fired power plants following the closure of its nuclear power plants. These developments could strengthen the demand for coal, and hence put upward pressure on ocean freight rates. With regard to China, further stockpiling may be induced if lower iron ore demand persists, and consequently put upward pressure on ocean freight rates.

"However, the most important market driver is the wave of new vessel deliveries. At the same time, low steel prices and strong U.S. dollar have added to slow retirement of older vessels, exacerbating the problem of excess vessel supply. Will the vessel owners cut back on orders of new vessels in 2015? Or will the owners’ optimism of 2014 continue to drive an increasing orderbook as it did in 2014?"