It has never cost more to ship goods on ocean-going vessels than it does now.
That’s causing headaches for importers and exporters of prairie agricultural commodities like wheat, canola, pulses and livestock products.
Fuelled by strong demand from China, tight vessel supplies and logistical issues at a number of ports around the world, rates for shipments to Asia have hit record levels in recent weeks, surpassing by about five percent those set in the spring of 2004.
“Demand is outstripping supply and vessel owners are pushing values up as much as they can,” said Jay O’Neil, an economist at the International Grains Program at Kansas State University.
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“With commodity prices up 80 percent from last year and ocean freight up 105 percent from April 2006, world grain buyers are really feeling the pinch.”
Short period daily hires on Panamax vessels in the Pacific have climbed to more than $45,000 a day, or around $51.40 a tonne.
That’s up 30 percent from the beginning of the year, and more than 100 percent from a year ago.
Even rates on the less volatile Atlantic route are approaching historically high levels.
O’Neil said the rationale for the skyrocketing freight rates is robust import demand in all sectors, particularly China’s appetite for iron ore, and poor worldwide logistics.
Operational problems at coal ports in Australia, iron ore ports in India and grain ports in Brazil, along with delays at the Panama Canal due to lock repairs, have created a backlog of vessels.
For example, shipping industry observers estimated in early April that 100 of the 700 vessels with capacity in excess of 150,000 tonnes were at anchor off the Australian coal port of Newcastle.
Jason Newton, a grain market analyst at the Canadian Wheat Board, said the last time prices got this high in 2004, the industry responded by instituting new vessel building programs.
As those vessels continue to come into service, that should cool the freight market, he said. The current boom could also trigger more new construction.
“Eventually the supply should expand to meet the demand, although it takes a while to build an ocean vessel,” he said. “It won’t happen overnight.”
In the meantime, the wheat board and other Canadian exporters have no choice but to ship commodities on ocean vessels and try to cope with the impacts of the rates on grain markets.
“When buyers see the higher commodity prices and the freight, the landed price for them is pretty high,” he said.
As a result buyers are reluctant to book much in advance. Even on nearby sales, buyers are reluctant to take large volumes, given the costs involved.
The high ocean rates also provide a competitive advantage to exporters who are closer to destination markets, such as Australia shipping to Asia. Luckily for Canada, Australia has not been aggressive in export markets due to its drought and reduced grain supplies.
