Ocean freight rates still at astronomical highs despite steel import slowdown
Ocean freight rates for US-bound cargoes are still rallying at record highs since demand for bulk ships continues to exceed supply. The robust raw materials trade (iron ore, coal) requires more long-haul voyages that tie up ships for longer periods of time, driving prices upward. High bunker costs, port congestion, and aging fleets are also contributing to the continuing price escalation.
As demand is expected to increase rather than ease in the near future, due largely to China's and India's seemingly insatiable hunger for iron ore, the bulk shipping market is expected to remain tight until a number of new ships are added to fleets. There are currently many bulk ships on order, but they will not enter fleets until 2009 and 2010.
There has been some slight softening seen in recent weeks, though most believe that this is just a slight correction and that rates will continue to be strong in 2008.
Current per metric ton Handymax rates for large tonnages (ie: minimum 15k tons of rebar, wire rod, hot rolled coils) are 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: $85 /mt to $90 /mt
Black Sea and Mediterranean Sea to US Gulf Coast: $80 /mt to $85 /mt
East Asia to US Gulf Coast: $97 /mt to $102 /mt
East Asia to US West Coast: $83 /mt to $88 /mt
Barge market may soften slightly in '08
The barge market in North America also remains moderately strong despite the low amount of steel cargoes, with demand for other commodities keeping barge supplies fairly tight. In particular, the US' robust grain crop pushed up spot prices significantly and reduced barge availability in late summer/early fall of 2007. Some softening is expected to take place in 2008, however -- Contract rates for 2008 are in line with 2007 rates and in some cases slightly lower.
Fuel continues to be a major cost factor for barges - fourth quarter fuel surcharges for barges range from 24 to 30 percent, up sharply from the third quarter.
Rail car availability good, but fuel surcharge adds hefty cost
The rail market is also still seeing good demand from various sectors in the absence of steel, but there are no major issues with rail car availability. Demand is expected to continue growing in the coming years, however, which will tax the current infrastructure. New capacity will be added over the coming years though, as there are many expansion projects underway to add new routes and to add cars to fleets.
The fuel surcharge for rail cars continues to go up with the price of diesel: Carload fuel surcharges from the major carriers will be at 18.5 percent in December, based on the October on-highway diesel fuel price of $3.075 per gallon. In January, the surcharge will rise to 21.5 percent, based on the November HDF price of $3.396 per gallon.
Trucking sector faces numerous challenges
The trucking industry is facing a growing number of challenges, including increasing costs of fuel and equipment, highway congestion, and the lack of drivers - a problem made worse by the myriad of new regulations related to homeland security. Unfortunately, it doesn't seem that these problems will be relieved anytime soon, and barging and railing may increase in popularity as a result.
As of November 28, the LTL fuel surcharge for truck cargoes is at 24.5 percent, based on the current diesel price of $3.44 per gallon.