North American transportation and logistics

Ocean freight rates finally start to soften Ocean freight rates have eased off their peak levels since last month, however, experts say that the pricing trend is still firm. The market for Handymax vessels has softened somewhat, as the steel market is slowing. Import steel shipments have fallen off since their dramatically high levels in September, with very few import flat rolled or wire rod shipments scheduled for shipment in the fourth quarter. Therefore, there are more ships available and the tightness in the shipping market has eased. However, sources say that charter hire levels are still high, and most market players are optimistic going into the new year, as the steel and steel shipping markets are both expected to pick up again in late Q1. In the short term, we will most likely see some softening, but no major price correction is expected. A steel shipper told SteelOrbis this week, “Ocean freight rates are down, but this is probably more of a case of falloff in activity and an increase in competition . . . The pricing trend is still relatively firm, with some short-term softening.” The bunker is also significantly down from its peak level of $75 /barrel a few months ago, now under $60 /barrel. On the whole, rates for Handymax vessels have softened by about $2 /mt since last month. Going rates for Handymax ships carrying large tonnages of steel (minimum 15,000 tons of hot rolled coils, rebar, wire rod, etc.) are as follows: Baltic to US East Coast: $50 /mt to $55 /mt Baltic to US Gulf Coast: $45 /mt to $50 /mt Black Sea and Mediterranean Sea to US East Coast: $45 /mt to $50 /mt Black Sea and Mediterranean Sea to US Gulf Coast: $45 /mt to $50 /mt East Asia to US Gulf Coast: $68 /mt to $73 /mt East Asia to US West Coast: $63 /mt to $68 /mt Tightness at US ports is slowly easing There is still congestion at major steel discharge ports like Houston, but as import shipments slow down, the congestion is slowly dying down in turn. As we reported last month, the East Coast ports are not unduly busy, and even at the busiest ports, Baltimore and Philadelphia, waiting times are reasonable. The terrible congestion witnessed at the Port of Houston and the Port of New Orleans over the past several months has eased significantly, especially in New Orleans. A steel trader told SteelOrbis this week that Houston is still tight, but the situation has improved since last month and is slowly getting better. Much of the congestion at the Port of New Orleans in over the past year is explained by an increase in breakbulk business to make up for the container business which was lost as a result of Hurricane Katrina's damage to the Port's container capacity. The Port of New Orleans released figures this week that showed that compared to the same period in 2005, iron and steel imports to the Port rose 37 percent during the first eight months of 2006, totaling 2.96 million short tons. Shipments of natural rubber and forestry products also registered huge increases during the first eight months of the year. The outlook now is that import steel shipments will decline throughout the remainder of the year, so congestion at the major steel ports should continue to ease. Barge rates coming down along with fuel surcharge Barge availability has increased further since last month, and rates have come slightly down. As most fuel surcharges are calculated on a quarterly basis, we won't see them drop in the fourth quarter, however, Q1 fuel surcharges should be significantly down. This will have a major impact on barge pricing, as current barge rates remain at an exorbitantly high 30 to 45 percent. The other issue right now in the barge market is seasonal, as barge carriers are struggling to ship their barges before the closure of the Upper Mississippi, which may close early this year, depending on the weather. Rail/Truck fuel surcharges continue to fall The general slowdown of the US steel market is affecting all sectors of the steel transportation market, including railcar and truck availability, which should ease along with the slowing market. Lower diesel prices are also bringing down the fuel surcharges: The fuel surcharge for railcars, which is usually calculated on a monthly basis, is approximately 15.5 percent in November, down from 18 percent in October. The major carriers will reduce their surcharges to 13 percent in October to reflect the decreasing fuel rates. The fuel surcharge for trucks, typically calculated on a more frequent basis, is 15.5 percent, down 0.5 percent since last month.