What’s behind pulses’ shift to bulk exports?

Bulk is king when it comes to ocean freight, says a grain transportation expert.

Bulk shipping rates are at historically low levels, said Mark Hemmes, president of Quorum Corp., the government appointed grain monitor.

Panamax vessels are renting out for $4,000 to $4,500 per day compared to more than $90,000 during the heyday of 2007 and 2008, when China was importing vast quantities of steel.

Rates began to plummet following the 2008 global economic meltdown, falling as low as $2,500 to $2,800 per day last winter as ships ordered to be built during the peak shipping period continue to hit the high seas.

“Anybody who is alive today has never seen bulk ocean rates this low,” Hemmes said.

Container shipping rates have also dropped but not by the same magnitude as bulk.

Hemmes said that is because container companies such as A.P. Moller-Maersk, Orient Overseas Container Line (OOCL) and Hapag-Lloyd are mammoth corporations that own hundreds of vessels.

They can afford to idle a portion of their fleet, anchoring the ships in a safe port with a skeleton crew.

“They can afford to manage capacity,” he said.

“The supply and demand relationship isn’t as severe as it is with a bulk vessel.”

Bulk vessel companies are small by comparison. The big ones may own a dozen ships.

“I wouldn’t put them in the category of mom and pop because a Panamax vessel costs about $80 million, but they’re not in the same league as, say OOCL or Maersk, or somebody like that,” said Hemmes.

They can’t afford to idle capacity, which is why the oversupply situation is worse on the bulk side.

The rock bottom ocean freight rates have been a financial boon for all shippers.

“The grain industry has had a three year-plus run of really, really cheap ocean freight and a lot of that time was during a period when commodity prices were just through the roof, so everybody was making tons of dough,” he said.

Containerized grain movement became popular during the era of $90,000 per day bulk shipping rates, and many grain companies have stuck with that mode of transportation because of its advantages.

Lots of customers in overseas markets don’t want or can’t handle 10,000 tonnes of grain. Some buyers in Asia Pacific use the containers for storage while they slowly consume the contents.

“You kind of get a free shed for a couple of months,” said Hemmes.

However, there are also drawbacks to shipping commodities by container.

The main one is finding empty containers. Grain is primarily shipped in 20-foot containers and they can be elusive.

Another problem is that a 20-foot container loaded with grain is heavy. Ships were built to move 10 to 11 tonnes of commodity per container. A container loaded with grain weighs 23 to 25 tonnes.

That means a full container has to be balanced off with an empty container as a form of ballast. The full ones generally sit on the bottom of the pile.

“You can’t load a vessel full of grain containers because otherwise it would sink,” he said.

Hemmes said there will always be a market for containers, but bulk is definitely on the rise.

For instance, Canadian pea and lentil shipments loaded onto bulk vessels through the end of the third quarter of 2015-16 totalled 2.52 million tonnes compared to 2.17 million tonnes during the same period last year and 1.54 million tonnes the year before that.

Hemmes does not track container shipments by commodity, but he is pretty confident they are down for pulses because overall grain shipments by container are down.

Part of the reason more pulses are moving in bulk is that there is increased participation in that industry by the major grain companies and they are more familiar with bulk movement.

“When you see companies like Viterra and Richardson really getting heavy into peas and lentils, you got to know that they’re going to look to arbitrage freight as best they can,” he said.

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