New ocean vessels keep coming on stream, but there’s not enough demand for cargo to keep them busy.
“There’s way too much supply and not enough demand,” said David Przednowek, ocean freight manager for the Canadian Wheat Board.
It doesn’t require a degree in economics to figure out the result – falling freight rates.
That’s good news for overseas shippers and prairie grain farmers, who ultimately pay those freight rates.
According to figures from the United Nations, vessel tonnage increased by seven percent in 2010 while dry-bulk tonnage, which includes grain vessels, increased by nine percent.
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China purchased just over 20 million tonnes of wheat, corn, barley and sorghum last year, that is well below the 60 million tonnes purchased in 2021-22.
In the past year, 830 vessels were added to the global dry-bulk fleet, a 13 percent increase.
New vessels that had been ordered in the past two years will come into service in 2011 and 2012, which will also 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 Przednowek.
“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.
All of this is good news for farmers, who pay the cost of shipping their grain to overseas customers.
“We’re generally at a freight disadvantage to competitors like the U.S., but that disadvantage will be reduced by softer prices,” O’Neill said.
The Baltic Dry Index, which tracks the cost of shipping bulk commodities, has declined for eight weeks in a row to 1,084, 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 has dropped to $27 per tone from an average of $36 last year. Other routes showed similar or greater declines.
Przednowek said several things must happen to change the situation:
• the shipping market needs an injection of new demand to catch up with supply;
• more older vessels need to be scrapped;
• the number of vessel owners needs to be reduced, a real possibility given financial difficulties they face.
