The optimistic outlook for ocean freight, rail, truck and barge has been tempered by rising prices and tepid demand.
Sluggish demand results in fluctuating ocean freight rates
China's steel industry continued to boost the dry bulk ocean freight market's gradual recovery, importing 6 percent more iron ore in February than in January. February's total of 49.4 million metric tons also reflected a 5.6 percent increase from the same month last year. However, China's steel consumption has been catching up to its steel production, as exports of finished steel products from China fell 13.8 percent from January, at a level of 2.49 million mt. The country's steel production was up approximately 4 percent in February from January, totaling 50.4 million mt.
Freight rates for Capesize ships saw significant gains in the first half of March, with weekly increases of 33.2 percent as of March 5 and 10.8 percent as of March 12, influenced heavily by iron ore shipments. However, optimism faded near the end of the month; as of March 26, rates dropped by 11.2 percent from the previous week due to slower demand for larger vessels. Recent increases in spot iron ore prices have put pressure on Capesize rates, and until the iron ore negotiations are settled, the Capesize market is expected to remain strained.
Meanwhile, rates for Handymax ships enjoyed a continuous uptrend throughout the first few weeks of March, raising an average of 8.3 percent a week from February 26 to March 19. Rates peaked on March 19, reflecting an 88.1 percent increase from the same week last year, but dropped by 1.4 percent over the next week. Rates for parcel shipments of steel did not experience the fluctuations of full-cargo rates, and remained at the levels reported in early March. Most steel freight rates to the US for large tonnage of steel (i.e. at least 15K tons of HRC or wire rod) are as follows:
Baltic Sea to US East Coast: $55 to $60/mt
Baltic Sea to US Gulf Coast: $50 to $55/mt
Black Sea and Mediterranean Sea to US East Coast: $55 to $60/mt
Black Sea and Mediterranean Sea to US Gulf Coast: $50 to $55/mt
East Asia to US Gulf Coast: $60 to $65/mt
East Asia to US West Coast: $55 to $60/mt
Will rising steel prices dampen the rail sector's recovery?
Nearing the end of March, North American railroads enjoyed four consecutive weeks of increased rail traffic compared to the same period last year. As of March 20, the Association of American Railroads (AAR) reported that year-to-date shipments of metallic ore rose 31.3 percent from 2009; metal and metal products increased by 35.4 percent; and waste and scrap shipments improved by 15.9 percent.
According to the AAR, North American rail freight volume for the first eleven weeks of 2010 on 13 reporting US, Canadian and Mexican railroads totaled 3,941,811 carloads, up 3.6 percent from the same period last year, and 2,772,992 containers and trailers, up 8.7 percent from the same period last year. These numbers reflect higher increase percentages from those previously reported, which signify a sustained recovery in overall freight traffic. Whether steel prices are inflating into a mini-bubble as some predict remains to be seen, but considering that metallic ore, metal and metal products, and waste and scrap only make up approximately 7 percent of the total rail freight, a decrease in steel prices might not significantly interrupt rail's recovery.
As for fuel surcharges, April levels have retreated slightly from March, which seemed to represent a small spike. According to seasonal patterns, the charges should level out for the rest of spring before jumping up during the summer. Major carriers Union Pacific and Burlington Northern Santa Fe reported respective carload fuel surcharges, based on February national average diesel prices, at 15.5 percent for April. This is only a slight dip from March's 16 percent surcharge, but still a significant increase from the 9.5 percent surcharge in April 2009.
Trucking experiences moderate growth despite monthly volatility
Last week, the American Trucking Association (ATA) reported that the seasonally-adjusted truck tonnage index decreased 0.5 percent in February from January. However, the index represented a 2.6 percent increase from February 2009, and an increase of 3.5 percent for the first two months of the year compared to the same period last year. ATA Chief Economist Bob Costello partially blamed the month-to-month decrease on severe winter storms during February, and although he expects to see some volatility on a month-to-month basis for the rest of the year, he remains confident the trend will show moderate growth for 2010. "I continue to hear from motor carriers that both the demand and supply situations are steadily improving," Costello said. "Certainly it will take a while to make up the ground lost during the recession, but the industry is on the path to recovery."
The "ground lost" can be seen in recently reported year-on-year statistics from the Bureau of Transportation Statistics of the US Department of Transportation. Trade between the US and NAFTA partners using surface transportation decreased by 23.3 percent in 2009 compared to 2008. The first six months of 2009 reflected a 31.1 percent decrease compared to the previous year, but things started looking up in the last half of 2009: the year-on-year decrease narrowed to 14.9 percent, and by December, surface trade increased by 10.5 percent compared to December 2008. The "moderate growth" expected in the trucking sector can also be seen as a positive indicator for the economy at large, considering that in 2009, 86.6 percent of US merchandise trade by value with Canada and Mexico moved on land.
As of March 24, 2010, based on a national average HDF price of $2.95, most US trucking companies were charging a 20.3 percent fuel surcharge for LTL (less than truckload) and 40.6 percent for TL (truckload).
Barge fleet threatened by environmental measures
Although the barge sector has continued to chug along in 2010, it is facing a rather fishy issue that could potentially dampen its gradual recovery. The American Waterways Operators (AWO), a national association for the tugboat, towboat and barge industry, testified before Congress in February to ensure that measures to protect the Great Lakes from the spread of Asian carp, an invasive species that is harming the ecology of the lakes, does not sacrifice "critical jobs or the environmental and economic benefits of barge transportation." Del Wilkins of the Canal Barge Company Inc. testified on the AWO's behalf and offered several alternate solutions that would protect the environment as well as the barge industry, which, he pointed out, "is the safest, most economical mode of domestic freight transportation, with the smallest carbon footprint."
The Army Corps of Engineers, which stewards the domestic inland waterway system, has proposed temporary or intermittent lock closures to stop the spread of Asian carp. The AWO believes such procedures will "impede essential commerce without stopping the advance of the carp" and instead proposed alternate measures such as installing more electric fish barriers, using bubble and acoustic technology, and funding research on biological control agents.
The US inland barge fleet cannot afford to have integral locks shut down, such as the Chicago and O'Brien locks in Illinois that the state of Michigan is trying to close to prevent the carp spreading into Lake Michigan. According to Informa Economics, the US barge fleet shrank in 2009 for the first time in four years. Only 628 new barges were added to the overall fleet while 1,126 barges were retired.