Ocean freight rates show no signs of letting up
The ocean freight market continues to be tight, with the raw materials trade, rising fuel costs, and lack of available vessels being the main price drivers.
Shippers say that the Handymax market remains very strong, with no downturn in freight rates expected. Fuel costs continue to soar, with crude oil in mid-May reaching the $120s per barrel, and the raw materials trade is still very busy trade as India and China continue to import iron ore and coal from producing countries like Brazil and Australia.
The lack of new ship builds is another factor that is keeping the market tight, particularly for Handys. Though there are some new ships scheduled to come into the market by 2009 and 2010, there are worries that with the current "credit crisis" and the resulting difficulties in procuring financing for large projects, a lot of these new builds may be canceled.
In mid-May, per metric ton Handymax rates for large tonnages (ie: minimum 15k tons of rebar, wire rod, hot rolled coils) were 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: $89 /mt to $94 /mt
Black Sea and Mediterranean Sea to US Gulf Coast: $79 /mt to $84 /mt
East Asia to US Gulf Coast: $91 /mt to $98 /mt
East Asia to US West Coast: $75 /mt to $80 /mt
Ports shift their focus away from steel imports
It is reported that things are still pretty quiet at the major steel ports in the US and Canada, with no congestion to speak of. Ports that used to see a lot of steel imports, such as the Port of New Orleans and the Port of Hamilton in Ontario, Canada have reported significant losses in earnings due to the absence of import steel activity - In 2007, steel imports to NOLA dropped 48 percent, resulting in a 20 percent drop in the port's total cargo. Hamilton saw steel imports drop 65 percent in 2007, resulting in a 43 percent drop in total profits. As it becomes apparent that steel imports will not return anytime soon, many ports are now shifting their focus away from steel and towards other kinds of business such as containerized and project cargo.
On the other hand, despite the major slowdown in imports, ports are seeing more export business these days. Steel export activity is picking up as the weak dollar and strong overseas markets are making exporting a more viable option for US mills. This trend is expected to continue Also, the US is currently exporting large quantities of grain from the Gulf and the West Coast due to strong demand from overseas, particularly Asia. Grain is typically a seasonal export; however, grain shippers are starting to export their product year-round to meet the high international demand. The Port of Los Angeles recently reported that grain exports are up 150 percent, year on year.
Barge mart sees soft demand, rising fuel costs
Softness persists in the barge market, largely due to the lack of imports. This downward price trend is expected to continue, though there is a chance that it could improve somewhat in the third quarter, when grain activity typically ramps up. Overall though, a weak couple of months is expected for the US barge market.
Meanwhile, fuel surcharges are still on the rise. Currently, most of the larger quarterly-based carriers are still quoting fuel surcharges in the high 20's (percentage-wise), and monthly-based carriers have surcharges of close to 40 percent. By the third quarter, the big carriers are expected to go up to the high 30s.
Rail transportation prices continue to rise on strong demand
In contrast to the barge market, the North American rail sector is still very strong. Prices continue to rise as domestic steel activity in addition to export activity, particularly in agricultural products and steelmaking raw material cargoes, heat up. The Association of American Railroads (AAR) recently reported that carload freight was up 0.9 percent in April 2008 compared to the same month of the previous year, with commodities like grain, coal, and chemicals showing year-on-year increases. Year to-date as of May 3, grain traffic was up 18.2 percent from the same period of 2007, while metallic ore traffic was up 13.9 percent, and coal cargoes were up 4.6 percent.
Fuel surcharges continue to rise across the board. The rate-based carload fuel surcharge from BNSF and UP rose from 21.5 percent in April to 26.5 percent in May, and will rise to 28.5 percent in June, based on the April 2008 HDF average monthly price of $4.084 per gallon. CSXT's WTI-based fuel surcharge will rise to 36 percent as of June 1, up from 33.2 percent in May. The June surcharge is based on the WTI average monthly price of $112.57.
Trucking sector struggles to overcome skyrocketing fuel costs
The trucking sector is said to have some good deals compared to rail rates, but in general, high diesel fuel costs are causing prices to soar and trucking companies' margins to shrink. The trucking industry is doing what it can to become more fuel-efficient by reducing speeds and adding more hybrid and compressed natural gas-powered vehicles to fleets. Still, much of the damage has already been done - due to higher fuel costs and lower volumes, industry analysts have estimated that nearly 1,000 trucking companies went bankrupt in the first quarter.
As of May 14, current LTL fuel surcharges are at an average of 33.5 percent, while TL surcharges are at 44 percent. These surcharges are based on the national HDG on-highway diesel price of $4.331 per gallon as of May 12.