Prairie farmers are benefitting from a massive over-supply in ocean freight capacity.
Capacity is far outstripping demand, which has reduced the cost of shipping freight on ocean-going vessels.
Vessel tonnage increased by seven percent in 2010 and dry-bulk tonnage, which includes grain vessels, increased by nine percent, according to United Nations.
In the past year, 830 vessels were added to the global dry-bulk fleet, a 13 percent increase.
New vessels ordered in the past year or two in anticipation of strong markets will come into service in 2011 and 2012, which will continue to keep a lid on ocean freight rates.
“The plans for those vessels were laid years ago and now we’re seeing them being delivered to the market,” said David Przednowek, ocean freight manager for the Canadian Wheat Board.
“You’re not going to stop the flood of tonnage that’s expected this year and next.”
Jay O’Neill, an agricultural economist at Kansas State University, said in a recent newsletter that cargo demand will increase by five to six percent in 2011, but the world fleet will increase by 16 percent, even after scrapping and cancelled orders are taken into account.
The Baltic Dry Index, which tracks the cost of shipping bulk commodities, has declined for eight weeks in a row, falling to a low of 1,084. That is its lowest point since Jan. 30, 2009.
In its latest transportation report, the U.S. Department of Agriculture said the average freight rate from the U.S. Pacific Northwest to Japan, which averaged $36 a tonne in 2010, is now $27. Other routes showed similar or greater declines.
