This article has been reprinted from the Jan. 16 USDA Grain Transportation Report.
Ocean freight rates for shipping bulk commodities, including grains, fell during the fourth quarter of 2019, pushing the yearly average rates to the lowest in 3 years.
In 2019, the average ocean freight rate for shipping bulk grain from the U.S. Gulf to Japan was $36.17 per metric ton (mt) (10 percent lower than in 2018).
From the Pacific Northwest (PNW) to Japan, the average rate was $19.86 (11 percent lower than in 2018) (fig. 1).
The spread, which is the difference between the U.S. Gulf- and PNW-to-Japan rates, averaged $16.31 per mt—20 percent less than in 2018.
The cost of shipping grain from the U.S. Gulf to Europe was $15.06 per mt, 20 percent less than in 2018.
Ocean Rates in 2019:
First Quarter –
During the first quarter of 2019, ocean freight rates for shipping bulk commodities, including grains, remained low compared to the previous quarter and the same period in 2018.
However, the rates were higher than the 4- year average (see April 25, 2019, Grain Transportation Report (GTR)).
Ocean freight rates declined in the first quarter of 2019 when the Baltic Panamax Index1 fell to 574 points.
Likely responding to the cyclical slowdown in global trade around the New Year holidays, the decline may also have been triggered by a coal-trade slowdown in the face of high coal inventories at Chinese ports (Drewry Maritime Research, Inc. (Drewry)).
Ocean freight rates continued to fall in February as the collapse of Vale’s Dam in Brazil and consequent mine closures disrupted the supply of iron ore (see April 25, 2019 GTR).
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, a severe cyclone halted operations in some major iron-ore-exporting ports in Australia.
Second Quarter –
Ocean freight rates for shipping bulk grains during the second quarter of 2019 were below the same period a year ago.
Overall, the rates were above the 4-year average when compared to the previous quarter (see July 25, 2019 GTR).
Although the rates were lower than 2018, they were higher than each of the 3 years before 2018, and they exceeded the 4-year average.
Despite being slightly lower than the same period a year ago, the Gulfto-Japan and PNW-to-Japan rates increased in the second quarter from the first quarter.
The increase was in response to a continued strong trade of coal and iron ore in the second quarter, resulting from higher electricity consumption in Asia during the peak summer season.
The increasing non-coking coal trade in Asia boosted the demand for Panamax vessels.
In China, strong steel production and declining iron ore inventories boosted iron ore imports. In addition, China’s rising importation of soybeans from Brazil lengthened hauls, which benefitted dry bulk vessel operators.
Third Quarter –
During the third quarter of 2019, ocean freight rates for moving bulk commodities, including grain, increased compared to the previous quarter, a year earlier, and the 4-year average.
The increase was partly due to strong trading of bulk commodities, especially firmness in India’s coal imports and surging iron ore exports from Brazil during the quarter (see October 31, 2019 GTR).
In August, bulk ocean freight rates continued to increase as iron ore exports from Brazil began to return to normal, following the disruption in coal mines caused by collapsed dams earlier in the year.
According to Drewry, India imported 20 percent more coal during the first 5 months of 2019 than during the same period in 2018.
India’s coal imports were fueled by infrastructure development, which generated additional demand for steel, increasing imports of coking coal.
In September, ocean freight rates continued to surge as India’s appetite for imported coal remained strong because of sluggish domestic coal production.
In addition, the approaching winter triggered coal-restocking activities in Europe and Far East. India also produced more cement, which requires coal to produce.
Fourth Quarter –
Although higher than the 4-year average, average ocean freight rates fell from the previous quarter and from the same period a year earlier (see table below). Rates declined in November and remained relatively stable in December.
In general, iron ore and coal trading was weak in the fourth quarter.
Weak trading reduced demand for Capesizes and Panamax vessels and lowered rates for drybulk vessels.
A softer demand for coal imports by the European Union had a similar dampening effect on rates.
In the fourth quarter, too, a slowdown in India’s economic growth produced a chain of events that slowed the demand for power, which reduced the demand for coal imports and ultimately reduced ocean freight rates.
In an effort by the Chinese Government to curb coal imports, tight custom clearance for coal persists at several Chinese ports.
According to Drewry, China was cautious about restocking iron ore inventories amid uncertainty over a trade deal with the United States.
Current Market Analysis and Outlook
As of January 9, the rate for shipping a metric ton (mt) of grain from the U.S. Gulf to Japan was $45.00—2 percent less than the previous week and unchanged from the same period a year ago.
The rate from the Pacific Northwest (PNW) to Japan was $24.25 per mt—3 percent less than the previous week and 1 percent more than the same period last year.
Typically, rates either drop or change very little in December and January because of slow trade activity during the holidays.
However, future rate changes depend on many factors, including the recently enforced International Maritime Organization regulations on low sulfur emission by oceangoing vessels and other trade issues