Ocean freight rate slide continues amid economic turmoil
Bulk freight rates are trending sharply down amid the global lending freeze, China's continued slowdown in iron ore imports, and the general panic in the market. Although ship owners had hoped that the dry bulk market would start to recover after the Chinese Olympics, this has not been the case as the worldwide economic crisis and the overbuilt iron ore and steel inventories in China have stifled business even further, with the Baltic Dry Index falling to its lowest level in the second week of October since July 2006.
A speedy recovery of the dry bulk market is not probable, with demand expected to be lower in 2009 than in 2008. The ongoing credit crunch may result in cancellation of much of the scheduled new ship builds, but even if there are fewer-than-expected new ships entering the market, the soft economy and tight credit environment could cut demand significantly. For now, the pricing trend for ocean freight rates remains strongly down.
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: $82/mt to $87/mt
Baltic Sea to US Gulf Coast: $77/mt to $82/mt
Black Sea and Mediterranean Sea to US East Coast: $92/mt to $97/mt
Black Sea and Mediterranean Sea to US Gulf Coast: $80/mt to $85/mt
East Asia to US Gulf Coast: $90/mt to $95/mt
East Asia to US West Coast: $83/mt to $88/mt
Despite import slowdown, West Coast ports face congestion from new regulations
Due to weak import activity, traffic at major North American ports remains un-congested in mid-October, except for at two major West Coast ports -- the Ports of Los Angeles and Long Beach -- which are experiencing moderate congestion due to new regulations that require trucking companies that do business at the ports to obtain special concession licenses. LA and Long Beach are also seeing reduced imports, but the higher congestion caused by the implementation of the new regulations is causing some concern.
While port traffic is significantly down on the dry bulk side, container import activity at US ports is also depressed to the weak dollar and sluggish economy -- The container volume at major US ports is expected to decline 6.5 percent this year compared to 2007, hitting its lowest level since 2005. And although it was hoped that the relatively weak dollar would give a boost to exports this year, the worldwide economic crisis and recent strengthening of the dollar against other currencies has put a damper on this bright spot for the US economy -- The US Commerce Department reported last week that total exports from the US sank 2 percent in August.
Fuel surcharges for rail and truck inch downward
One arguably positive effect of the current weak economy is a reduction in oil prices, and subsequently, a reduction in the fuel costs that had been crippling many businesses. Based on a drop in fuel costs in September from August, major North American rail shippers Burlington Northern Santa Fe (BNSF) and Union Pacific (UP) will lower their fuel surcharge to 28 percent as of November 1, compared to 31 percent in October and 35 percent in September. As fuel has come down further since September, fuel surcharges will register another decrease in December.
On the trucking side, fuel surcharges are also down. In mid-October, based on the National Average On-Highway Diesel Price of $3.66 per gallon, the average fuel surcharge in the US for LTL (Less than Truck Load) was 27 percent, while TL (Truck Load) was 37.5 percent. US diesel prices peaked in mid-July 2008 at about $4.75 per gallon.