Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: Well, it isn’t over yet. The Panamax and Handymax market rally somehow continues. There is no denying the fact that global Dry-Bulk ocean freight indices and rates have experienced a big leap in value over the past month. Baltic Indices are now up to levels not seen since February 2014. Physical markets, however, are greatly lagging these past equivalent levels. In February 2014 U.S. Gulf-Panamax prices to Japan were $53.00/MT versus $37.00/MT today. The question now is whether this rally is fully justified, and can it be sustained?
When you look at the forward curve in the freight futures market it looks like a fair amount of skepticism exists. Nearby daily hire rates for Panamax vessel have moved from $6,000/day up to $9,000-plus/day (up 66 percent). The Panamax BPI has jumped up 42 percent, yet I do not see a 30 percent or 40 percent improvement in cargo demand. So, someone must be holding back. Given that we still have an imbalance (a surplus) of ships versus cargo, I wonder what will happen when all the surplus vessels want to capture the benefit of these higher markets? Bankers will certainly twist the arms of vessel owners to grab this opportunity. The Capesize market has already begun to adjust back down a bit.
This bump up in Dry-Bulk rates will also make containerized grain shipments more competitive to Asia and provide motivation for container shipping lines to raise their rates. These are certainly interesting times and will be somewhat fun to watch.
Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to China:
The charts below represent year-to-date 2016 versus January-December 2015 annual totals for container shipments to the Philippines.
