Low Bulk Freight Rates Helpful
EDMONTON - Jan 26/16 - SNS -- The recent drop in bulk ocean shipping costs strengthens Canadas ability to compete with other countries, particularly with those that are located closer to Canadas export markets.
"Ocean transportation costs affect Canadian export competitiveness in the world markets," says Neil Blue, crop market analyst, Alberta Agriculture and Forestry, Vermilion. "Other than for our major North American trading partners, the U.S. and Mexico, most of our commodity exports must cross an ocean."
Just prior to the 2008 recession, ocean shipping rates were high and increasing due to the combination of a rapid increase in ocean traffic and a relative shortage of efficiently operating ships. Inspired by large profits, shipping firms contracted construction of new vessels. It takes from one to three years to construct each ship, depending on the ship size and timing of resources required, but ocean shipping capacity expanded steadily as the backlog of construction contracts was dealt with.
The Baltic Dry Index (BDI), issued daily by the London-based Baltic Exchange, is an indicator of ocean freight rates for raw materials, including coal, iron ore and grain. Not just for Baltic Sea countries, the index includes 23 shipping routes and covers Handysize, Supramax, Panamax (with 60,000 deadweight capacity and able to cross through the Panama Canal) and the larger Capesize dry bulk carriers.
"During the first week of 2016, the BDI was quoted at 445 points, the lowest since the Baltic Dry Index records started in 1985," says Blue. "This index was trading over 1200 last August, but fell below 500 for the first time in November 2015. An over capacity of ships, the slowdown in Chinese demand for coal and iron ore, crude oil price weakness, and declining commodity prices are all contributors to these lower freight rates. Some analysts suggest that ocean freight rates will remain low until at least 2017.
Although lower ocean freight rates do not necessarily translate into higher Prairie crop prices, it may have had a positive effect on our sales and shipment volumes, explains Blue.
"With major credit to the weakening Canadian dollar but some credit to lower ocean freight rates, for the first five months of this crop year, Canadian wheat exports are five per cent higher than last year at this time. Canola exports are running almost 12 per cent higher. Pea and lentil exports are also higher, reflecting exceptional demand for those crops."
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