Spring 2005 US steel transportation analysis

Spring 2005 US steel transportation analysis

April and early May saw an overall freight rate drop. Shipping analysts point to a variety of reasons for this drop but focus much of the blame on China. Most agree that a 17.5% drop in volume is due to China’s measures to curb iron ore imports. Adding to the downturn were the recent Chinese holidays, which greatly tempered business in the Pacific markets. Regardless, figures show that Chinese raw materials imports are showing 2-4% year-on-year gains and there is no reason to expect a further downturn. The dry bulk freight market has recently shown a small but significant rebound of 1.8%. Early speculation is that the market may have bottomed out for the time being. The tightening in the market is attributed to a scarcity of ships in the Atlantic. Panamax Atlantic front haul rates are currently commanding low to mid $40’000’s daily while round-trip rates are seeing mid $30’000’s daily rates. The Baltic Exchange reports that freight costs for Panamax vessels from the US to northwest Europe are currently around $35/ton while shipping costs between the US and Japan are hovering in the $57/ton range. Throughout the continental US, barge availability continues to be stretched. A strong coal market has contributed to the tight barge market. Fuel surcharges for May are running between 25-29%, off from April’s 35% rate. Barge rates are way above their 2004 levels. Operators point to higher operating costs, such as barge fleeting, shifting, and cleaning. These rates are expected to continue through the remainder of 2005. The American Trucking Association reports truck tonnage decreased 3.3% in March, which is in direct correlation to the economic slowdown reported in recent economic data. Tonnage volumes eased somewhat with the slowdown in consumer spending and higher energy costs. While year-to-date tonnage increased 3.9% compared to a year ago, it is off the 5.7% growth rate seen in 2004. Trucking is expected to remain at a premium. Diesel fuel prices continue to fluctuate. Retail prices for a gallon dropped 2.7 cents to $2.262 per gallon, but it was not enough to offset the 3-cent hike seen the week before. Diesel costs have recently soared to four consecutive all-time highs. Despite the recent decline, shippers can still expect to pay fuel surcharges of 11-22%. Recent relief has come to US consumers as well. The average nationwide cost of gasoline has fallen 3 cents over the past two weeks to $2.24 a gallon and a total of 4.5 cents since April 8. According to the semi-monthly Lundberg Survey, the fall in pump prices can be attributed to an increase in crude oil and the completion of key maintenance projects at several oil refineries.