Four years ago ship owners were being beaten down by low freight rates caused by a glut of available ships.
But a year and a half ago people chartering ships, including those exporting Canadian crops, were being savaged by an extreme rise in freight rates by the ship owners, who suddenly found the world didn’t have enough ships.
Now fairness might be taking hold with both sides learning to live with the others’ need to make a buck.
“It’s trying to find a sustainable, workable level, where everybody’s happy,” said shipping industry analyst Stephen Pyne of Montship in Vancouver.
Read Also
USDA’s August corn yield estimates are bearish
The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
“It’s a bit of an up and down finding of the new level that’s going on right now.”
Shipping rates affect the price farmers get for their crops because no matter who ends up paying the rates, they are worked into the crop’s price.
A few years ago it cost less than $20 per tonne to ship to Japan, leaving farmers with more money. When shipping prices rose above $50 per tonne about two years ago, farmers saw the prices of their crops discounted in response.
Today, shipping rates are in the $30-$40 per tonne range, a rate that exporter Lach Coburn of Cargill in Vancouver said everyone should be able to live with.
“When the prices were as low as they were … you run the risk that there won’t be enough suitable tonnage when we need it. I think (ship owners) are comfortable with where the levels are in this environment. Let’s hope we can hold these numbers for both sides for some while.”
Pyne said the world glut of ships was soaked up by the sudden demand from China for bulk commodities of all sorts. Not only was China adding new orders for bulk shipments, but several Chinese ports became clogged, slowing ship turnaround times.
At one point it was difficult to get a ship at all, even at high freight rates, said Coburn.
“There was a squeeze where there was just not enough tonnage in the marketplace.”
But then Chinese ports appeared to start running more efficiently, and Chinese demand seemed to drop, freeing up more ships and knocking down shipping prices.
Recently they’ve surged upward again, although not to the peaks of December 2004.
“Rates have come off fairly strongly from April of this year,” said commodity risk management specialist Richard Dzisiak of the Canadian Wheat Board.
“It’s easier to get a new boat now, whether it’s new boats coming on line or less demand. We’ve seen a pretty dramatic change.”
Pyne said some new ships have been launched recently, but the effect on the supply of ships is unclear.
A new ship gives a shipping company the chance to retire an old ship, keeping supply relatively even-keeled.
But old ships won’t necessarily be retired.
“In a strong market people will hang onto a ship as long as they can. If you’ve got a ship that’s basically paid for and still works, and you can still get a half decent dollar for it, you’ll try to flog it as long as you can,” said Pyne.
“If everybody gets a bunch of new ships and nobody scraps, then we all know what happens to prices when that happens.”
Pyne said the scrapping rate will indicate what future shipping supplies will be.
Coburn said it’s easier to make offshore sales of Canadian crops when shipping prices are low, as they were four years ago, but he hopes they don’t fall to that level. Ship owners need to make a fair profit, just as farmers and exporters do.
“We need a healthy shipping industry,” said Coburn.
“Maybe $15-$20 Vancouver to Japan was too cheap, but certainly $50-$55 was too expensive. We’re back into that $30-$40 range now, and that’s comfortable for everyone.”
