This article has been reprinted from the Feb. 14, USDA Grain Transportation Report.
Ocean freight rates for shipping bulk commodities, including grains, increased from 2017 to 2018, which is the highest since 2014.
In 2018, average ocean freight rates for shipping bulk grain from the U.S. Gulf and Pacific Northwest (PNW) to Japan were $45.39 and $25.07 per metric ton (mt), which respectively is 15 and 19 percent higher than the previous year.
The cost of shipping grain from the U.S. Gulf to Europe was $19.85 per mt, 28 percent more than the previous year.
However, the rates were still lower than the historic highs recorded in 2008, as there was still an excess supply of vessels in the market.
A General Look at 2018 Ocean Rates:
Following is a brief summary of the year by quarter.
First Quarter - Ocean freight rates for shipping bulk commodities, including grains, were mixed during the first quarter of 2018.
The rates for shipping bulk grains from the U.S. Gulf to Japan averaged $44.27 per metric ton (mt) during the quarter, which is 2 percent higher than the previous quarter, 21 percent higher than the same period a year earlier, and 22 percent higher than the 4-year average.
The cost of shipping from the Pacific Northwest (PNW) to Japan averaged $24.25 per mt, which is 1 percent less than the previous quarter, 27 percent more than the same period a year ago, and 24 percent more than the 4-year average.
It cost $16.82 per mt to ship grain from the U.S. Gulf to Europe during the quarter—4 percent below the previous quarter, but 14 percent above the same period a year earlier, and 5 percent above the 4-year average.
The year began with slightly declining ocean freight rates caused by a temporary lull in economic activity due to various holidays.
In addition to the cuts in steel production in China, unfavorable weather conditions, including heavy snow and winds, slowed construction activity.
Low steel production dampened the demand for iron ore imports.
The rates continued to fall during February, as industrial activity slowed down in China, amid the Chinese New Year celebrations.
High coal prices also affected the demand from countries that were not facing peak demand season.
The rates bounced back in March, as shipments of grain, other minor bulks, and concentrates increased (April 19, 2018 Grain Transportation Report (GTR)).
Second Quarter –
Regarding bulk grains, changes in second quarter ocean freight rates from the previous quarter were mixed, however, were above the same period last year and the 4-year average.
The rates for shipping a metric ton (mt) of grain from the U.S. Gulf to Japan averaged $43.68 during the quarter, which is 1 percent below the previous quarter but 15 and 23 percent above last year and the 4-year average, respectively.
The rates from the Pacific Northwest (PNW) to Japan averaged $24.37 per mt, which is almost unchanged from the previous quarter, 22 percent more than the same period last year, and 25 percent higher than the 4-year average.
It cost $20.67 per mt to ship grain from the U.S. Gulf to Rotterdam, Germany—23, 43 and 34 percent more than the previous quarter, the same period last year, and the 4-year average, respectively.
The second quarter began with declining rates for both the U.S. Gulf-to-Japan and PNW-to-Japan routes.
The decrease in rates was likely related to restrictions on coal imports in China, which put downward pressure on the rates for Panamax vessels.
In addition, the fleet continued to expand, as demolition activity reached its lowest levels in the last two decades.
Strikes by iron workers in Canada, and by truck drivers in Brazil, impacted the iron supply in the global market, thereby decreasing the number of Panamax vessels needed to move the smaller supply (July 26, 2018 GTR).
Third Quarter -
Strong iron ore trade and firm coal demand pushed up ocean freight rates during the third quarter.
The ocean freight rates for shipping a metric ton (mt) of grain from the U.S. Gulf to Japan averaged $45.13 during the quarter.
The cost of shipping averaged $24.97 per mt from the Pacific Northwest (PNW) to Japan; and $21.06 from the U.S Gulf to Europe.
These rates were above the previous quarter, the same period last year, and the 4-year average.
Rates started to climb in July due to strengthening iron ore trade in China and firm coal demand in Europe.
Further, the Chinese government was pursuing expansionary policies by boosting investment in infrastructure and driving up steel and aluminum production (October 28, 2018 GTR).
In addition, the hot summer drove up the demand for coal in Europe.
The activity in the bulk shipping market was mixed in September.
However, the market for the Panamax vessels was buoyant, as the U.S. Gulf-to-Japan and PNW-to-Japan rates increased and the U.S. Gulf-to-Europe rate declined.
While there was a lull in coal demand in Europe ahead of restocking, coal trade strengthened in the Pacific-Australia-Far East route.
Strong grain trade also supported the long-haul route between the United States and Japan, which pushed up the ocean freight rates for that route.
The Baltic Panamax Index reached 1,689 points at the end of September–the highest level, so far in 2018.
This indicates the Panamax vessels normally used to haul grains were in high demand during September, which consequently led to rate increases in some of the major grain routes.
Fourth Quarter –
Average ocean freight rates continued to increase during the 4th quarter, with the biggest monthly rate in October, and marginally decreases thereafter (see table and graph below).
U.S. Gulf-to-Japan and PNW-toJapan rates were above the previous quarter, the same period last year, and the 4-year average.
The U.S. Gulf-toEurope rate was also above the same period last year, as well as the 4-year average.
During October, robust steel production in India drove up the importation of iron ore to the country and the demand for Panamax vessels.
According to Drewry Maritime Research, rising coal trade on log-haul routes and improved minor bulk trades (steel, iron-ore, wood chips, logs and bauxite) as a result of Chinese accommodative fiscal policy also boosted the demand for Panamax, which consequently increased the ocean freight rates.
Strong dry bulk trades continued until December.
Current Market Situation and Outlook
Bulk ocean freight rates have been falling since the beginning of this year.
The rates from the U.S. Gulf to Japan averaged $43 per mt—10 percent less than December.
The rates from the PNW to Japan averaged $23.50 per mt—9 percent less than December.
As of January 31, the rate for shipping grain from the U.S. Gulf to Japan was $39 per mt, 17 percent higher than the beginning of the year (January 3).
The rate from the PNW to Japan was $22 per mt, 12 percent lower than the beginning of the year.
The rates were also lower than last year.
However, it is not certain if the rates will remain low or for how long.
With the introduction of International Maritime Organization Ballast Water Management System (BWMS) on September 8, 2017, demolitions of older vessels are expected to increase in 2019.
BWMS mandates that ships must manage their ballast water to remove aquatic organisms, or render them harmless, before the water is released into a new location.
Older vessels are likely to be scrapped or taken out of operation and sent to ship repair yards for retrofitting jobs.
This may temporarily reduce the supply of vessels and put upward pressure on the ocean freight rates.
According to Drewry Maritime Research, India steel consumption is expected to grow as it starts investing heavily on railway infrastructure.
The Indian government has planned to double track all routes for smooth passage of trains and increased timeliness.
This may encourage India to import more iron ore and coking coal, which may boost the demand for Panamax vessels and rates.
China’s increased use of aluminum has led to large imports of bauxite.
China imported 22 percent more bauxite during the first 11 months of 2018.
If this trend continues, the demand for Panamax vessels will increase as will the rates.
Finally, another factor affecting bulk vessel demand is spodumene production for lithium batteries.
A rapid increase in renewable sources of energy is creating the demand for lithium used in producing batteries for storing energy.
Consequently, an increase in lithium production is creating a demand for spodumene, which is used in producing lithium.
An increase in this minor bulk production has boosted the demand for bulk vessels and put upward pressure on the rates.