BANGKOK, Thailand (Reuters) Ñ The rising tide of ocean freight rates shows no sign of abating.
With China’s seemingly unquenchable need for iron ore, copper and steel, ocean going vessels are in acute demand, the big ports are clogged with ships, and rates are spiking unpredictably.
“For wheat users in Asia, soaring shipping costs, with the ocean freight rates climbing 100 percent, have added a burden to the already high cost of the raw material of wheat,” said Sathien Archavaniyut, executive vice-president of United Flour Mill in Bangkok.
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He told the annual Asia Wheat and Grain Transport conference in Bangkok last week that because of steep competition in the food industry, wheat millers are unable to pass on the increased costs to the consumer.
“In most parts of the world, retail food prices do not reflect what has happened to basic raw materials,” he said.
Industry sources say freight now accounts for about 30 percent of total costs, about double from just a few years ago.
Freight rates moved in a fairly narrow band between 2000 and 2003 but since then have moved sharply higher, with a couple of dramatic dips that have only frustrated market players trying to manage operations.
The Baltic Exchange Dry Index, which tracks the rates of dry bulk carriers, rose to a record 6,208 in December, a six-fold increase since 2002.
China, with its relentless expansion, is seen as the main driver with its taste for a range of basic commodities. In iron ore alone, shipments to the country are expected to leap from 112 million tonnes in 2002 to 250 million tonnes in 2005, or about equal to the current global grain trade.
Analysts say there is little relief seen in the next few years as the demand from China and other countries for all kinds of dry bulk goods are expected to remain high.
CLSA Pacific-Markets, the Hong Kong-based investment bank, forecasts China’s economy will expand by seven to nine percent annually through to 2010.
“The Chinese dragon will stay very, very hungry,” CLSA said in a recent report.
Grain merchants face tough competition trying to obtain cargo space with the market so tight, and more dramatic price changes can be expected, mostly to the upside.
“Freight rates will remain high certainly this year and for most of next year,” said Stephen Hanrahan, director of Ocean Shipping Consultants.
“Some people expected the Chinese market to crash and some talked about a soft landing. But we haven’t even seen a soft landing. It’s continuing to grow at a high rate.”
Benjamin Wilkes, chartering manager for Noble Grain Ltd., said it is increasingly hard to find cargo space for the grain trade with such high demand for ships and with severe port congestion in Brazil, India, China and Australia.
“The Chinese steamroller, while slower, certainly didn’t stop,” he told the Bangkok grain conference.
New ships are expected to begin plying the waters within the next three years and there could be extra capacity if the shipping industry decides to keep the old ships going to take advantage of the high rates. But if the old ships are scrapped, freight supply will continue to be tight.
