This article has been reprinted from USDA's April 25 Grain Transportation Report.
During the first quarter of 2019, ocean freight rates for shipping bulk commodities, including grains, remained relatively low compared to the previous quarter and the same time last year.
However, the rates are higher than the 4-year average.
The rates from the U.S. Gulf to Japan averaged $40.86 per metric ton (mt) during the quarter.
This represents a 16 percent decrease from the previous quarter, an 8 percent decrease from a year ago, and is 24 percent higher than the 4-year average.
The Pacific Northwest (PNW) to Japan rates averaged $22.98 per mt, 14 percent below the previous quarter, 5 percent below the same time last year, and 26 percent above the 4-year average.
It cost $16.73 to ship a metric ton of grain from the U.S. Gulf to Rotterdam during the first quarter.
This indicates a 20 percent decrease from the previous quarter, a 1 percent decrease from last year, and is 17 percent higher than the 4-year average.
The year began with declining rates, as the Baltic Panamax Index, which tracks the cost of shipping bulk items in a Panamax vessel, fell to 574 points.
There was a slowdown in trade activity due to New Year holidays around the world.
Coal trade also slowed down because coal inventories at Chinese ports were high.
According to Drewry Maritime Research (Drewry), Chinese customs officials delayed clearance for coal shipments in November and December 2018.
This led to a buildup of inventories at the Chinese ports, thereby slowing coal imports.
Ocean freight rates continued to fall during February as the collapsed dam and consequent closure of mines in Brazil disrupted the supply of iron ore.
The disruption of iron ore supplies further reduced the employment of Panamax vessels.
According to Drewry, manufacturing contracted in China for the second consecutive month in January.
The Purchasing Manager Index fell below 50, in December 2018 and January 2019.
An outbreak of swine fever in China also affected feed consumption and, consequently, the demand for soybeans.
China’s pork production fell by 0.9 percent in 2018. In addition, the Chinese New Year celebration kicked in from February 5 to 19, slowing overall trade and manufacturing activities in China.
Ocean freight rates increased slightly in March, as the market was still feeling the effects of low iron ore supply from Australia and Brazil.
In addition to mine closures in Brazil, severe cyclone halted operations in some major iron ore exporting ports in Australia.
At the same time, Australian coal shippers were still experiencing delays in receiving customs clearance in China.
These combined effects have slowed down the rate increase.
Current Market Situation and Outlook
As of April 18, 2019, the rate for shipping a metric ton (mt) of grain from the U.S. Gulf to Japan was $42 The rate for the Pacific Northwest to Japan was $23 per mt.
The U.S. Gulf and PNW rates were 11 and 8 percent lower than the beginning of the year, and 5 and 4 percent below the same period a year ago, respectively.
It may take a while before the market experiences a significant increase in ocean freight rates.
The market is still reeling from the effects of mine closures in Brazil and the reduced exports of iron ore from Australia from the cyclone, which are both impacting iron ore supply.
Coal imports in China and other northern hemisphere countries are generally low during April because of the off-peak consumption season.
According to Drewry, China plans to reduce its coal imports in 2019 by 10 million tons, which will affect the demand for Panamax vessels.
However, there may be a temporary increase in the demand for coal during the month of May.
The potential increase is due to the onset of peak summer season in China, driven by electricity consumption for cooling.
The International Maritime Organization’s mandate to reduce sulfur emissions from ocean-going vessels, as of January 1, 2020, could impact both newly-built vessels and vessel demolition activities (see October 25, 2018 and February 14, 2019 GTR).
Until the full impact of the new standard is realized, vessel owners will likely be cautious moving forward with newly-built vessels, as they weigh the options of using emission scrubbers or ultra-low sulfur fuel.
Demolition activities could increase as well, as vessel owners prepare and balance the fleet under the new standard.
The onset of summer peak season in China, slow addition of newbuilding and increased demolition of older vessels may put an upward pressure on ocean freight rates.