Second Quarter Bulk Ocean Freight Rates Below Last Year, Above Four-Year Average

This article has been reprinted from USDA's June 25 Grain Transportation Report.

During the second quarter of 2019, ocean freight rates for shipping bulk grains were below the same period a year ago.

The rates were above the 4-year average and mixed, compared to the previous quarter.

Although the rates were lower than last year, they were higher than each of the prior three years, making them higher than the 4-year average.

Ocean freight rates for shipping bulk grains from the U.S. Gulf to Japan averaged $42.78 per metric ton (mt), 2 percent below the same period last year, 23 percent above the 4-year average, and 5 percent more than the previous quarter (see table 1 and figure below).

The rates from the Pacific Northwest (PNW) to Japan averaged $23.56 per mt.

This is 3 percent lower than last year, but 23 and 3 percent higher than the 4-year average and the previous quarter, respectively.

It cost $16.62 to ship a metric ton of grain from the U.S. Gulf to Europe, 20 percent less than last year, 6 percent more than the 4-year average, and 1 percent less than the previous quarter.

Although Gulf-to-Japan and PNW-to-Japan rates were slightly lower than a year ago, the rates were pushed up from the previous quarter due to firm coal and iron ore trade during the quarter.

Electric consumption increased in Asia during the peak summer season.

This resulted in an increase in non-coking coal trade, which boosted the demand for Panamax vessels. Strong steel production and declining iron ore inventories in China boosted iron ore imports. In addition, increased Chinese importation of soybeans from Brazil increased haulage length and benefitted dry bulk vessel operators.

Current Market Analysis and Outlook

As of July 11, the rate for shipping a metric ton of grain from the U.S. Gulf to Japan was $46.50, 1 percent less than the beginning of the year, but 2 percent above the same period last year.

The rate from the PNW to Japan was $25.50 per mt, 6 and 3 percent more than the beginning of the year and same period a year ago, respectively. Although the rates have been fluctuating and increasing in recent weeks, the rates are still relatively low,

compared to the historical highs.

Ocean freight rates have been moderated by excess vessel supply in the market. Despite the relatively low ocean freight rates, new vessel deliveries have increased. According to Drewry Maritime Research (Drewry), new vessel deliveries have increased about 16 percent during the first half of 2019, compared to the same period in 2018.

This has resulted in a 2 percent increase in the dry bulk fleet, with a little over 3 percent of the existing fleet still scheduled for delivery during the second half of 2019. Table 2 shows the number and capacity of the dry bulk fleet over time.

Between December 2012 and June 2019, the global dry bulk capacity has increased by 180.5 million deadweight tonnages (mdwt), a 27 percent increase.

During the same period, the Panamax vessel fleet has increased by 61 percent to 65.9 mdwt.

Ocean freight rates may generally trend upward, temporarily, in the coming months. Drewry noted that vessel deliveries are expected to remain strong for the remainder of the year.

However, an expected rise in demolition activity, caused by the International Maritime Organization’s regulations on ballast water, will eventually slow the rates of dry bulk fleet expansion.

High demand for electricity in developing countries continues to boost coal trade. India’s expanding industrial output, coupled with sluggish domestic coal production and low international prices, has encouraged India to import more coal in 2019.

For instance, India imported 17.3 million tons (about 225 Panamax shipments) more non-coking coal between January and April 2019, compared to the same period in 2018.

According to Drewry, increasing demand for solar thermal devices such as absorbers, casings, frames, concentrated solar projects, wind panels and solar cookers is pushing up the demand for aluminum in China.

Recent restrictions on aluminum scrap importation in China could push aluminum producers to use more bauxite for producing aluminum products, causing the importation of bauxite to rise.

Each of the factors described above could individually or collectively exert upward pressure on bulk ocean freight rates.