Ocean freight rates have hit a trough in the roiling seas of international freight markets.
Since November 2007, the cost of shipping bulk commodities like grain in ocean vessels has declined by nearly 50 percent.
The London-based Baltic dry freight index hit 5,948 points last week, down from its record high of 11,039 points in November.
That translates into daily hire rates for grain-hauling Panamax and Handymax vessels of around $35,000 a day, down from more than $70,000.
Rates for shipping grain from the U.S. Pacific Northwest to Japan have fallen to $52 US a tonne from more than $100 a tonne in late October. Since Jan. 1 alone, that rate has dropped by 16 percent.
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All of that spells good news for grain shippers and farmers.
“If the end user is still paying the same price, and the freight costs go down, that’s more money for the producer,” said Dave Przednowek, a policy analyst with the Canadian Wheat Board.
If a buyer is paying $400 a tonne for grain landed in China and freight costs $100 a tonne, the net value of the grain at port is $300. If the freight costs drop to $80, the net value of the grain is $320 a tonne.
Lower rates also help reduce Canada’s distance-related freight disadvantage when shipping into certain markets.
For example, Australia is significantly closer to major markets like Asia and the Middle East and so enjoys a freight advantage over Canada. That advantage increases as rates go up and decreases as rates go down.
“If freight rates stabilize at these levels, it will be positive for producers,” said Przednowek.
A number of factors have combined to produce the big drop in ocean freight.
- Economic woes in the United States, including fears of a recession, have led to concerns about the possibility of an overall slowdown in the global economy and a reduction in worldwide demand for shipping.
- A standoff between Chinese importers of iron ore and their suppliers in Brazil over shipping costs has resulted in the cancellation of some 30 cargoes, thus freeing up capacity for other shippers.
- Port disruptions caused by bad weather in Australia and Indonesia reduced traffic and weighed on rates.
- Congestion has eased in a number of ports around the world, freeing up capacity and putting downward pressure on rates.
Some analysts say rates could fall further under the threat of a U.S. recession, which might reduce American imports of iron ore and coal.
“All the markets are bearish right now,” said one trader quoted by Reuters News Agency. “This market doesn’t have much upside potential.”
Przednowek said some buyers may be anxious to forward book freight now, while prices are low, which could pay off in the event something sends the market back up.
He said it’s hard to predict with confidence whether ocean freight rates will stay at current levels, go up or drop.
“The market has been extremely volatile for the last couple of months,” he said.
