US transportation: chugging right along

Monday, 05 July 2010 08:25:23 (GMT+3)   |  
       

Despite an overall sluggish recovery in the US economy and obstacles that could potentially throw progress off course, the US transportation sector is has continued its path of steady improvement.

Glut of available space sends ocean freight rates tumbling

The Chinese iron ore import market continued to dominate the trends for ocean freight rates in June, as an abundance of iron ore supply in the East led to fewer Capesize vessels traversing between West Australia and China.  The situation wasn't helped by the third quarter contract price announcement from the major iron ore producers, indicating a price hike that would exceed current spot market prices.  Believing that this move would prevent spot prices from falling any further, most Chinese steel producers were inclined to sit on their built-up inventory and wait to make additional major purchases.

By the end of June, Chinese spot prices for imported iron ore were about $12/mt less than the Q3 contract price, which prompted the CEO of Australian iron ore miner Rio Tinto to consider rescinding quarterly pricing system.  Without the stability of contracts, volatility in the iron ore market would likely translate directly to volatility in ocean freight rates.

China's hefty inventory levels were already apparent in May: iron ore imports decreased 6 percent from April levels (51.9 million mt and 55.33 million mt, respectively), while China's crude steel production, at 56.14 million mt in May, increased by 1.4 percent month-on-month.  China's steel exports in May also increased from April, by about 15 percent.  If China continues its ever-increasing appetite for steel, iron ore imports will likely resume an upward trend in the near future.  However, if Chinese mills stick with the spot market instead of the stability of contracts, ocean freight rates will continue sailing through choppy waters.

As previously mentioned, Capesize rates experienced significant drops in June due to a glut of space availability.  A slight week-on-week decline of 3.7 percent was observed in the first week of the month, followed by a significant drop of 19.6 percent in the second week.  For the week ending June 19, rates shed almost a quarter of their market value, falling 33.3 percent from the previous week.  The abundance of iron ore supply in China and resultant lack of fresh inquiries partially contributed to the plunge, but the addition of newly built ships delivered into the market also had a significant impact.  By the last week of June, the week-on-week declines eased up, but still reflected an 18.8 decrease due to too much available space.

Handymax rates showed overall softening throughout June, but not as drastically as Capesize rates.  The week ending June 5 saw a 3.3 percent dip from the end of May, followed by week-on-week decreases of 6.2 percent, 6.4 percent, and 4.5 percent by the last week of the month.  Parcel shipment rates for certain routes increased in May, but came back down in June.  Current Handymax rates to the US for large tonnage of steel (i.e. at least 15K tons of HRC or wire rod) are now as follows:

Baltic Sea to US East Coast: $60 to 65mt (down $5/mt)

Baltic Sea to US Gulf Coast: $55 to 60mt (down $5/mt)

Black Sea and Mediterranean Sea to US East Coast: $60 to 65mt (down $15/mt)

Black Sea and Mediterranean Sea to US Gulf Coast: $55 to 60mt (down $15/mt)

East Asia to US Gulf Coast: $60 to $65/mt (no change)

East Asia to US West Coast: $55 to $60/mt (no change)


US rail industry invests in the future

The continued upward momentum of US rail traffic didn't slow down in May, with overall gains in steel-related freight volumes.  According to the Association of American Railroads (AAR),  North American rail freight volume for the first 26 weeks of 2010 on 13 reporting US, Canadian and Mexican railroads totaled 9,208,258 carloads, up 10.4 percent from the same period last year, and 6,507,218 containers and trailers, up 12.9 percent from the same period of 2009.  Cumulative shipments of metallic ore as of the week ending June 26 rose an astounding 69 percent year-on-year, while shipments of metal products increased by 53.9 percent and metal scrap and waste rose 27.4 percent.

Several projects are underway to improve the US rail infrastructure, including investments in the Norfolk Southern railroad's Heartland Corridor, which links Chicago, Columbus, Ohio and the Port of Norfolk, Virginia, with plans to extend the corridor's reach to Cincinnati.  The $6.1 million project-of which $3.6 million is funded with stimulus money- will include accommodations for double-stack container trains.

"Ohio is strategically positioned to satisfy the growing demand for high-quality intermodal freight service throughout the Midwest," said Mike McClellan, Vice President of intermodal marketing for Norfolk Southern. "The Heartland Corridor West extension to Cincinnati leverages our Heartland Corridor and the success of our Rickenbacker intermodal facility in Columbus, creating new opportunities for shippers while at the same time delivering significant economic and environmental benefits throughout Ohio, northern Kentucky and southern Indiana."

Jacksonville, Florida-based CSX, which operates freight trains in 23 states east of the Mississippi, is also investing in double-stack train traffic, with a $400 million project to accelerate the movement of freight from the Midwest to ports on the mid-Atlantic coast.

Fuel surcharges for July will be at the same level as June. Major carriers Union Pacific and Burlington Northern Santa Fe reported respective carload fuel surcharges at 18.5 percent for July based on May fuel prices of $3.069 per gallon.  However, surcharges will drop slightly in August to 17 percent, based on June fuel prices of $2.948.


US trucking still improving despite monthly dip in traffic

Still suffering from an undersupply of available trucks, the US trucking sector saw its first drop in tonnage levels since February of this year.  According to the American Trucking Association (ATA), the seasonally-adjusted truck tonnage index decreased by 0.6 percent in May, following a 0.9 percent increase in April.  However, May levels reflected a 7.2 percent increase compared to May 2009, the sixth consecutive year-on-year gain.

ATA Chief Economist Bob Costello said that truck freight tonnage is going to have ups and downs, but the trend is continuing in the right direction. "Despite the month-to-month drop in May, the trend line is still solid," Costello said.  "There is no way that freight can increase every month, and we should expect periodic decreases.  This doesn't take away from the fact that freight volumes are quite good, especially considering the reduction in truck supply over the last couple of years." 
Another indication of US trucking's upward trend was the June 30 announcement by Daimler Trucks North America LLC that, based on increased demand for freight trucks, it plans to recall approximately 540 workers to three of its manufacturing facilities in North Carolina-a move which will help remedy the current truck shortage.

Additionally, news from the US Department of Labor indicates relief for the accompanying truck driver shortage; the for-hire trucking industry added jobs for the third consecutive month in June, with a cumulative total of 8,800 new trucking jobs since March.


Gulf oil spill proves to be no barrier to US barge fleet

Despite the oil spill disaster plaguing the Gulf of Mexico, barge traffic through the Port of New Orleans traveling up the Mississippi river to major Midwest ports has fortunately not been affected.  Three ocean vessels were stopped for cleaning, but overall, business is continuing as usual, without significant delays.

In the Great Lakes region, barge traffic continued to improve in both monthly and annual respects.  According to the Lake Carriers' Association (LCA), US-flag Great Lakes freighters carried 9.9 million net tons of cargo in May, an increase of 29 percent compared to April and a rise of 39 percent compared to May 2009.  Of that total, 6.3 million tons were iron ore shipments, which reflected an increase of 16.4 over April and a staggering surge of 106 percent compared to last year.

While the reported gains can be attributed to the slowly recovering US steel industry, it should be noted that coal shipments increased month-on-month, but decreased year-over-year.  May levels of 3.2 million net tons were 27.2 percent higher than April, but 11.5 less than May 2009.  Monthly shipments from Lake Superior ports decreased the most, while loadings in Lake Erie and Chicago increased slightly.


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