WINNIPEG — The Baltic Dry Index, which tracks global bulk shipping rates, has fallen to its lowest levels in 30 years, which should make North American grains and oilseeds more competitive in the international market.
The index was quoted at 554 points yesterday, which is the lowest reading since records started in 1985. It was trading above 1,400 as recently as November, but has found itself in a steady decline over the past three months. The BDI is compiled daily by the London-based Baltic Exchange and provides an assessment of the price of moving major raw materials by sea, including grain.
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An overcapacity of ships, the slowdown in Chinese demand for building materials, weakness in crude oil and declining commodity prices have all been cited as contributing factors to the lower freight rates.
“It’s symptomatic of the weaker global economy,” said CWB market analyst Neil Townsend.
He said the long turnaround time in building ocean vessels means ships ordered a number of years ago, when there was more optimism on the economic front, are now entering the global fleet and contributing to the oversupply.
As far as grain and oilseed exports are concerned, lower freight rates even the playing field in some cases by lessening the importance of shipping costs in the final price to the buyer.
Ukrainian grain is ending up in places it never did before because the ocean freight is no longer prohibitive, said Townsend, noting that the cheaper freight means Ukraine can sell for a few dollars less and its landed price is still competitive.
In another example, Egypt recently purchased wheat from Romania in a tender.
“Their prices were a bit higher, but their ocean freight was a bit lower, so they were able to displace a bit of French wheat and be competitive into Egypt,” said Townsend.
As Canada can also be at a freight disadvantage to some of its competitors, exporters are able to take advantage of the lower ocean freight to some extent. However, Townsend added that “Canada derives less of a benefit (from the lower ocean freight) because we rely so heavily on rail.”
He pointed out that the cost of moving grain from the Prairies by rail to export positions accounts for the larger freight component in moving Canada’s grain.
The cyclical nature of the freight sector means that rates will eventually rise again. However, the timing of that shift is unknown. Townsend said ship owners will usually increase their pace of scrapping ships when rates are low, but with more new ships still coming online, there may be fewer available ships to be scrapped.
