Ocean freight market remains as tight as ever
Ocean freight rates for steel transportation in March did not show any major changes from the previous month, though the long-term estimates are for the market to keep rising along with the strong demand and lack of supply, at least on the Handymax side.
In general, the dry bulk freight market is expected to stay firm due to the strong demand from India and China for coal and iron ore, among other factors including port congestion in Australia, increase of long haul voyages, high bunker costs, and aging fleets. Things are expected to stay especially tight for Handymaxes, the main type of ships used to transport steel; and while a number of new builds of larger ships will enter the market in 2008, Handymaxes will not have any new builds until the end of 2009.
Although the Baltic Dry Index (BDI), which measures contract prices for dry bulk ships, has shown some downward movement since mid-March, steel shipping companies say they just haven't seen any slackening of demand for Handys and have in fact seen prices rise slightly in the last month.
At the end of March, per metric ton Handymax rates for large tonnages (ie: minimum 15k tons of rebar, wire rod, hot rolled coils) were as follows:
Baltic to US East Coast: $88 /mt to $93 /mt
Baltic to US Gulf Coast: $83 /mt to $88 /mt
Black Sea and Mediterranean Sea to US East Coast: $89 /mt to $94 /mt
Black Sea and Mediterranean Sea to US Gulf Coast: $79 /mt to $84 /mt
East Asia to US Gulf Coast: $91 /mt to $98 /mt
East Asia to US West Coast: $75 /mt to $80 /mt
Soft conditions persist for barge market
The North American barge market remains soft with a lot of availability due to the lack of steel import activity. There is not very much cargo moving on the inland rivers and, therefore, the market is very competitive, with current spot rates trending 20 to 30 percent less than they were the same time last year. Slow market conditions are foreseeable for the rest of the year as the weak dollar is expected to continue keeping imports out of the US.
The bunker, however, is still high and is a large component of the overall price. Current fuel surcharges are as high as 27 percent, though they are often somewhat negotiable due to the soft market conditions.
Rail volumes and prices headed upward
Although import steel cargoes are scarce, rail companies are doing quite well, largely due to the strength seen in the domestic steel market. With domestic steel selling nicely due to the lack of imports, the rail market continues to see strong demand. The Association of American Railroads (AAR) recently reported that while US railroad volumes of intermodal traffic in February were down 3.4 percent from the previous year, carload volumes in February were up 2.7 percent from February 2007. Because of these tight conditions, for steel in particular, many rail carriers are announcing price increases to rates for steel transportation, effective for April and May.
In addition, fuel surcharges continue to rise along with oil prices. The carload fuel surcharge for rail cars from central and West Coast carriers Burlington Northern Santa Fe and Union Pacific will be 21.5 percent in April, based on the February HDF (highway diesel fuel) average of $3.377 per gallon, while East Coast carriers like CSXT are charging as high as 29.2 percent in April, based on the West Texas Intermediate Fuel Oil (WTI) average price of $95.35 per barrel in February 2008.
High diesel prices - A growing concern for trucking industry
Trucking companies in North America are also seeing good volumes from domestic steel, though overall, trucking isn't as strong as rail since trucking is more dependent on imports. Rising fuel costs also remain a huge factor affecting profitability for trucking companies - the American Trucking Association (ATA) announced this week that the trucking industry is estimated to pay over $135 billion on fuel this year, up from $112.6 billion in 2007, coming close to surpassing labor as the single-largest operating cost for truck carriers. The ATA says that fuel surcharges do not cover the fuel costs because of "empty miles" including out of route miles and circuitry, and that it fears that these high costs could lead to bankruptcies in the industry.
As of March 19, based on the March 17 national average on-highway diesel price of $3.974 per gallon, trucking fuel surcharges for LTL (less-than-truck load) shipments averaged at 30 percent, while TL (truck load) shipment surcharges were up to 40.5 percent.