Bulk ship shortage still putting pressure on ocean freight rates
Ocean freight rates are still at record highs despite the underwhelming demand for steel in the US.
The main factors driving rates up are the bulk ship shortage and the growth of trade, particularly of coal and iron ore, between China, India, and Brazil. Trade between these countries involves lengthier voyages, and delays at ports are common, so ships are tied up for longer periods of time. Rates are also currently being affected by the smaller soybean and grain crops in China this season which are creating more demand for cargoes of these crops from the US.
Ships are currently being built to alleviate the shortage, but many of them will not be available until 2010. The bulk freight market is expected to be tight until at least 2009. For this reason, containers are reportedly gaining popularity, though container steel shipping has not caught on in a major way yet, as this method has yet to be perfected as a cost-efficient alternative.
Per metric ton Handymax rates (minimum 15k tons of rebar, wire rod, hot rolled):
Baltic to US East Coast: $68 /mt to $73 /mt
Baltic to US Gulf Coast: $63 /mt to $68 /mt
Black Sea and Mediterranean Sea to US East Coast: $65 /mt to $70 /mt
Black Sea and Mediterranean Sea to US Gulf Coast: $63 /mt to $68 /mt
East Asia to US Gulf Coast: $85 /mt to $90 /mt
East Asia to US West Coast: $76 /mt to $81 /mt
Ports still looking for alternative business
Activity at the main steel ports in the US is still very quiet. A steel shipper told SteelOrbis, "Everyone's trying to figure out what they'll do next year without the steel. Everyone's trying to drum up some business."
Loss of steel revenue at major steel ports like Houston, New Orleans, and LA/Long Beach is also expected to be reflected in fourth quarter earnings.
Q4 fuel surcharges for barges sharply up
This year's robust grain season is still affecting barge availability and pushing spot rates up. Grain activity has let up slightly in the last month, however, as weather conditions have slowed down some of the harvesting and shipping. Carriers are hoping that there will be a resurgence before the season ends in November/December.
Barge spot rates for southbound cargoes are in the $40 /ton range, while fourth quarter fuel surcharges are up sharply from the third quarter, ranging from 24 to 30 percent. In some cases rail is being looked at as an alternative for barging.
Rail business faring better than expected, still faces challenges
The North American trucking sector continues to struggle as soft freight demand and high fuel prices cut into earnings. Trucking companies are reportedly very anxious for business.
The rail sector has not been as affected by the freight slump and fuel prices - major North American carriers Union Pacific and Burlington Northern Santa Fe recently reported higher-than-expected Q3 profits, citing efficiency improvements and cost controls as the main factors which helped to counteract the slow demand and high fuel prices.
Canadian National Railway Co, however, posted lower than expected third quarter earnings, citing, in addition to weaker freight demand, the problematic Canadian dollar/US dollar exchange rate.
The rail sector will continue to fight an uphill battle in '08, as demand is expected to stay relatively flat and increasing regulatory pressure may also cut into earnings and efficiency.
In November, most fuel surcharges for trucks (LTL) have climbed to 21 percent, up 0.5 percent from the previous month based on the current on-highway average diesel price (as of October 24) of $3.09 per gallon.
Rail car fuel surcharges in November range from 17.5 to 18 percent, depending on the carrier, based on September diesel prices of $2.95 per gallon.