World Grain - July 2015 - 36

FEATURE

SHIPPING RATES

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he dynamics of moving grain by sea either by container
ship or bulk carrier have, in many ways, aligned, and at
substantially lower pricing levels than a year ago. This
has enabled shippers and grain producers to swallow at least
some of the price discounts suffered in global grains markets
and, for U.S. farmers, to offset a stronger greenback. But for
their service partners operating vessels it is putting immense
pressure on bottom lines.
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Container Index has slumped from $2,100 per 40-foot container in February to just above $1,100 per 40-foot container
on June 11 - a loss in revenue compounded by a substantial
rise, albeit from a low level, in bunker prices over the same
period. The supply-demand balance is, of course, the root
cause of the contraction.
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15,000 TEU capacity, which offer lower slot costs for lines,
has prompted the cascading of capacity throughout the indusWU\9HVVHOVZKLFKKDYHEHHQUHQGHUHGWRRVPDOOWRFRPSHWHRQ
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lanes and the process has continued down the line through all
the trades, hurting rates and wiping out the global growth in
volumes witnessed in 2014 and this year which should have
been a boon for lines.
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owners wade into the newbuilding market in recent years.
Just as these vessels are entering service, demand for many
bulk cargoes, not least from China, has slowed. The overall
Baltic Dry Index has recovered slightly since May when
the index slumped to 584, but improvements have been
marginal. On June 5 it stood at 610, down from 977 a year
earlier and from almost 1500 last November. As the BDI
charts outline by vessel size (see chart, page 39), ocean
freight rates are almost as low now as they have been at
36

by Mike King

Low pricing levels have enabled
crop producers to make up for
discounts in global grain markets
any time throughout the last three years.
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evident in the largest bulk carrier sectors, where lower demand from China has played a heavy role, the smaller
classes that typically carry grains have also suffered. The
Baltic Handysize Index registered an impressive 1004 on
June 10, 2014 but was down to 610 in early June this year.
The Supramax and Panamax indexes were at 787 and 699 in
early June 2014, respectively. A year later they had fallen to
656 and 596.
Demand for coal and iron ore are the key drivers of dry
bulk freight rates. But more moderate economic growth
combined with the oversupply of vessels has been the key
bearish factor in the ocean freight market's supply-demand
balance. Iron ore shipments have stalled, or in the case of
African exports, been disappointing.
"Demand for bulk carriers is very weak, and if that weakness continues it can get very grim," said
Bimco Chief shipping analyst Peter Sand.
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2015, but the low freight rates are not likely
to improve much though.
"The lack of Chinese coal imports is what
is hurting owners and operators in the market right now. China is simply scaling back
Sand
on dry bulk imports and that is felt in the
July 2015 / World Grain / www.World-Grain.com

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World Grain - July 2015

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