Ocean Freight Comments
Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting: In a rather quiet trade, Dry-Bulk freight markets gained back what they lost last week. It is obvious that Dry-Bulk ocean freight markets bottomed out in 2016, and have since staged a recovery. The question today is, has the degree of recovery been fully justified – and is it sustainable? According to Clarkson Research, since February 2016 the Dry-Bulk sector recovery to date “is equivalent to moving 61 percent of the way back to historical averages.” That’s a big move. I do not argue the justification for the market turnaround, I’m just wondering if some in the market have not gotten a bit too optimistic too quickly. As we all know, nothing goes straight down or up forever and market players do tend to over-guess moves.
I do expect Dry-Bulk freight markets to be well supported with cargo demand through the fall harvest, and then I expect we are likely to witness a bit of a setback/adjustment going into the first quarter of 2018.
As you look at the growing U.S. grain port vessel line ups, it is obvious that we are getting deeper in the harvest. Russia thinks it might sell wheat to Mexico; if so, it would take freight of close to $38-$39.00.00/MT (e.g., $199 FOB Black Sea plus $38.00 freight would equate to $237.00/MT CIF West Coast Mexico?) Argentina has announced a sale of 33,000 MT of FH December wheat to Mexico. I’m guessing the freight to be around $35.00/MT.
A note on Panamax Dry-Bulk ocean freight rates for corn or soybeans to HCMC Vietnam: The appropriate market spreads on this route are not necessarily a direct thing to rate. If you are going from the U.S. Gulf via the Cape of Good Hope the steaming time to Vietnam (versus Northern China) is shorter, so, that freight would be a little cheaper. However, routing via the Panama Canal the distance is longer and thus more expensive. So, on average maybe it is best to say that the rate from the U.S. Gulf to Vietnam is about the same as to Northern China (give or take $1.00/MT depending on routing). The freight spread between N. China versus S. China is generally a $1.00-1.50 difference. Close to 90 percent of the Panamax vessels going from the U.S. Gulf to China are currently going around the Cape rather than thru the Panama Canal. This is due to relatively cheap fuel prices and the desire to avoid paying Canal fees.
Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to China:
The charts below represent YTD 2017 versus 2016 annual totals for container shipments to China.
