Ocean freight rate trend uncertain
Ocean freight rates came down over the holiday period, particularly in the Pacific market. However, as we are still emerging from the holiday season, it is not clear yet whether we are seeing a downward price trend or if we are just observing a temporary correction. The weeks to come should determine the overall pricing trend. In general, the ocean freight market is expected to remain strong in 2008, driven by high demand for the raw materials trade and the lack of ships. Even with the recent decreases, ocean freight rates are still hovering at record highs.
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: $95 /mt to $100 /mt
Black Sea and Mediterranean Sea to US Gulf Coast: $85 /mt to $90 /mt
East Asia to US Gulf Coast: $97 /mt to $102 /mt
East Asia to US West Coast: $83 /mt to $88 /mt
Low volumes, high fuel prices are concerns for barge market
The barge market has been softening slightly due to low import volumes and low dry bulk volumes in general, as well as plentiful availability. The rates are offset by high fuel costs, however. Overall, the barge market is expected to see a weak first quarter, and in 2008, the US barge market is expected to undergo an overall softening due to continuing low volumes.
The fuel surcharge for barges is negotiable for 2008 since the carriers are having to compete with each other for the limited business available. For most contract business, fuel is pegged at $1.75/gal, translating to a 20 to 25 percent fuel surcharge for contract business in the first quarter.
Rail market still chugging along at decent pace
The rail sector has also seen reduced volumes due to the slowing economy. The Association of American Railroads (AAR) reported that the total freight volume in 2007 was 16,952,288 carloads, off by 2.5 percent from 2006. The rail freight total for 2006, however, was the highest yearly total on record, and 2007's total, while down from the previous record year, still comes in at the second highest. Rates also increased by up to 30 percent in 2007, and some growth in demand as well as more rate hikes are expected for 2008.
The carload fuel surcharge for rail cars will be 21.0 percent in February, based on December 2007 diesel prices of $3.341. This is down from the 21.5 percent surcharge in January, which is based on the November 2007 diesel price of $3.396.
Trucking sector faces uphill battle
Economic analysts say that the trucking industry faces an uphill battle this year due to lower freight volumes, high fuel prices, as well as labor issues, which include high driver turnover rates and pension costs among other factors. Highway congestion is another major problem. Some expect freight volumes to improve in the second half of 2008, though this will ultimately depend on how the US economy fares in 2008, which no one is too optimistic about at this point.
As of January 14, the LTL fuel surcharge for truck cargoes is at 23.5 percent, based on the national average on-highway diesel price of $3.3726 per gallon.