MONTREAL, Que. – Special crop shippers shouldn’t expect ocean freight rates to fall soon, says Canada’s largest container carrier.
Appreciation of the Canadian dollar and rising fuel costs have put a financial squeeze on Canadian-based ocean carriers, and there doesn’t appear to be any let-up in sight.
“What this means is we will have the result of higher transportation costs,” Holger Oetjen, managing director of Hapag-Lloyd (Canada) Inc., told delegates attending the Canadian Special Crops Association convention.
Since 2002, the Canadian dollar has appreciated 57 percent against the U.S. dollar, placing a “huge burden” on any container line operating in Canada.
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“A huge portion of our costs are in Canadian dollars and our income is all in U.S. dollars,” Oetjen said in an interview.
At the same time, shippers have been experiencing massive increases in the fuel costs.
Hapag-Lloyd, which operates 133 vessels capable of carrying 499,000 containers, has seen its bills escalate to $544 per tonne of product moved, from $152 per tonne in 2004. In addition to its own fuel bill, the company must pay surcharges imposed by the country’s two railways.
“And there is no end in sight,” said Oetjen.
Special crop shippers have long complained about poor container supply and rising transportation costs.
Oetjen said Hapag-Lloyd is “more than committed” to the sector because it is a high growth and high volume business, but the cost to get special crops to market is disproportionately higher than other goods because it is a long journey to move containers into the Prairies and that means higher fuels bills.
“That needs to be recovered. We need to make a decent return,” said Oetjen.
Agricultural product also has a significant weight problem. A container filled with special crops weighs twice as much as the tonnage allocated to the container slot on the boat, which means a vessel that could carry 5,000 containers could accommodate only 2,500 containers carrying agricultural goods.
Oetjen said that disadvantage needs to be reflected in the rates charged to shippers of agricultural commodities.
“It’s just a question of making it work cost-wise.”
Murad Al-Katib, president of the Canadian Special Crops Association, said shipping costs have escalated dramatically in recent years.
His Regina-based lentil processing firm pays 150 percent more to export a commodity today than it did five years ago. Those costs are absorbed by the farmer, processor and importer.
“We’re fortunate that we’re in a position where the agriculture industry is doing very well right now,” said Al-Katib.
But he noted that Peter Hall, chief economist with Export Development Canada, told CSCA delegates that he expects the price of oil to fall below $100 per barrel by the end of the year, down from near $130 per barrel now, which would provide some relief on rising shipping costs. Other economists predict a weakening Canadian dollar.
