Ocean freight rates slightly down but still close to record highs
Dry bulk rates, while lingering at very high levels, have been trending slightly downward since peaking in June, in conjunction with high oil prices and concern over global economic conditions. Another factor influencing the market is the recent slowing of raw material imports into China in preparation for the Olympics. With Beijing's steel mills halting operations from mid-June until mid-September, iron ore shipments have slowed, resulting in a significant, if temporary, impact on the dry bulk market. As for the Handymax ships mostly used for steel cargo, rates are only slightly off their record highs, though there is no immediate upward price pressure.
Looking ahead, the Handymax/Handysize ship market is likely to stay relatively tight through at least 2009, as it has the lowest volume of newbuilding orders among the different types of dry ships, as well as the oldest fleet profile. The strong demand for and low supplies of larger bulk ships needed for the busy global raw materials trade should continue to have a trickle-down effect on the Handymax market, with dry bulk rates across the board expected to start trending upwards again in the fall. However, how long the bull market for dry shipping will last is largely dependent on whether the current credit crisis will prevent many of the scheduled new ship builds from taking place, which is a definite possibility.
Current per metric ton Handymax rates for large tonnages (i.e., minimum 15k tons of rebar, wire rod, hot rolled coils are as follows:
Baltic Sea to US East Coast : $95 /mt to $100/mt
Baltic Sea to US Gulf Coast: $85 /mt to $90 /mt
Black Sea and Mediterranean Sea to US East Coast: $100 /mt to $105 /mt
Black Sea and Mediterranean Sea to US Gulf Coast: $90 /mt to $100 /mt
East Asia to US Gulf Coast: $95 /mt to $100 /mt
East Asia to US West Coast: $85 /mt to $90 /mt
Ports continue to see steel import fallout ... with one major exception
Along with the high ocean freight rates, another aspect of the steel transportation business that hasn't changed since last year is the lack of steel imports to the US, due to a weak US dollar, stronger steel markets abroad, and various governmental import restrictions. For these reasons, steel imports of many products including wire rod, rebar and hot rolled coils, have been steadily decreasing since the end of 2006, and the ports that had relied on steel imports for much of their revenue are still reeling from the lack of business. With the continued low steel import levels and no signs that steel imports will return anytime soon, ports are diversifying as much as possible, expanding, in many cases, their handling of containerized and project cargoes.
Smaller ports are especially heavily impacted by the import slowdown since the high freight rates are causing steel shippers to only go to the major hubs rather than the smaller, out of the way destinations. One of the "steel hubs" that is benefiting from this trend is the Port of Houston. While steel imports at most ports have declined further since 2007, Houston's steel imports have remained steady, as imports that would normally go to smaller ports like Beaumont, Brownsville and New Orleans are now going to Houston instead, as it is the larger, more accessible steel destination in the Gulf.
Railroads gaining traction over trucks as fuel costs rise
The North American rail sector is currently seeing a boom in demand due in part to the busy raw materials trade as well as strong activity in grain. High fuel prices have also increased the popularity of transporting steel and other goods by rail, as freight trains are a cleaner, more fuel-efficient form of transportation than trucks.
Still, the high diesel costs are passed along to rail as well as truck customers. In August, major US freight railroads Union Pacific and Burlington Northern Santa Fe will raise their fuel surcharge to 34.5 percent (from 32 percent in July), while some carriers like Kansas City Southern will raise theirs as high as 44.4 percent.
Meanwhile, the North American trucking industry is suffering due to the high diesel fuel costs. At SteelOrbis' Steel Trade Conference held in San Diego this July, Carole Wink of Ancon Marine presented on the challenges that the US trucking industry is facing, stating, "Housing, the credit crunch, and high fuel costs have put added pressure on truckload utilization and pricing." Ms. Wink also listed other difficult issues the industry is confronted with, including increasing insurance prices for carriers and the cost of new environmental and homeland security regulations. With the financial meltdown preventing new trucking startups, Ms. Wink expects trucking company bankruptcies to increase.
Diesel prices started to come down modestly in July, though they are up a tremendous 63 percent from the same time last year. As of July 28, the national on-highway diesel price was $4.60, resulting in a trucking fuel surcharge of 36.5 percent for LTL and 47 percent for TL effective as of July 30.