While rising marine fuel (bunker) prices have been slow to influence freight rates, a solid uptrend is now expected in the near term.
The tense political situation in major OPEC nation Libya, and hints of conflict in others such as Saudi Arabia, has sent the price of oil far beyond the $100/barrel level, raising transportation costs across all sectors. Dry bulk freight rates did not reflect the trend until late February, as other factors, such as excess tonnage capacity, kept rates low through the early portion of the month.
Capesize rates, for example, plummeted 29.7 percent February 18-25, mostly attributed to Rio Tinto, the third largest iron ore producer in the world, declaring force majeure at its West Australian loading ports following a major hurricane. The week prior, Capesize rates fell 7.4 percent after getting a 38.5 percent lift from the Chinese return to the market following the Lunar New Year Holiday. Another factor that could soon influence freight rates is the recent decision by India's government to further stifle iron ore exports by quadrupling the iron ore export duty. This decision will primarily affect China, forcing the nation to ramp up imports from other countries.
Already, China saw a 29 percent month-on-month drop in iron ore exports in February, and while some of the decline can be attributed to the holiday, iron ore prices were also significantly higher last month than in January. As a result, steel product exports from China also fell in February, by 21 percent compared to the month prior.
Handymax rates, on the other hand, have not fluctuated as wildly over the last month, instead increasing gradually by percentages ranging from 1.4-3.5 week-on-week. However, parcel freight rates, which have remained static for several months, have felt the brunt of the worldwide oil situation--rates have increased approximately $7/mt across the board over the past month. 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: $67-$72/mt
Baltic Sea to US Gulf Coast: $62-$67/mt
Black Sea and Mediterranean Sea to US East Coast: $67-$72/mt
Black Sea and Mediterranean Sea to US Gulf Coast: $62-$67/mt
East Asia to US Gulf Coast: $67-$72/mt
East Asia to US West Coast: $62-$67/mt
Freight rates for container shipments are also under pressure, as the ConTex (Container Ship Time Charter Index) rose 2.8 percent to 662 as of February 25. However, container carriers are increasingly reluctant to send ships ahead for forward positions, which could raise rates soon, along with seasonal increases usually seen in March and April.
Another side effect of rising fuel rates is the decision by many carriers to slow-steam vessels (travel at lower speeds to reduce fuel consumption), which could have far-reaching effects on import decisions on all levels of the steel supply chain, from mills importing coal and iron ore to small-scale distributors bringing in finished products abroad. While OPEC has sought to ease concerns by discussing the possibility of increasing oil output for the first time in two years, no official action to drive down prices has been taken.