U.S. autumn freight market analysis

U.S. autumn freight market analysis

For the most part, industry experts are noting a relatively quiet ocean freight market dotted with a few sporadic rates spikes. The general consensus is that the ocean freight market has settled in for the short term and is holding its own. Overall, rates should remain steady for at least the fourth quarter 2005 and first quarter 2006 before beginning to trend gently downward. The Baltic Dry Index has climbed recently to 3’273, better than the 1’732 seen in August but considerably less than last year’s high of 6’210. Some freight rates seen from the China to the US West Coast are in the high $30s per metric ton for 10’000 dwt while 15’000 dwt is generally seeing low $30s per metric ton. Meanwhile rates from Europe to the US Gulf ports ranging are in the mid to high $30s per metric ton for 15’000 dwt. The most compelling story right now is the US barge market which has been turned on its end by the influence of Hurricane Katrina. The conventional wisdom is according to one industry expert, “as New Orleans goes, so does the barge market” and that is exactly what is happening right now. Katrina could not have crippled the nation’s busiest port at a worse time. The end of August and September is the height of the grain harvest and typically when the barge market is the tightest. With New Orleans operating at 25 percent capacity due to an extreme labor shortage, it is wreaking havoc and sending barge rates skyrocketing. While contracted shippers have more or less emerged unscathed, typical southbound spots rates to haul cargo from St. Louis to the Gulf of Mexico are around 700 to 800 percent higher than at this time last year. What that means is that shippers who were able to ship their goods southward at $4 per net ton are now being force to cough up $27 to $32 per net ton. For the most part, the extreme tightness in the barge market is expected to remain well into the end of the year and some predictions put it out as far as March 2006. Finally, one cannot forget to include the profit draining effect of fuel rates. While the price of gas has been coming down, albeit slowly, since the Labor Day holiday, rates still remain at historically high levels. The price for a gallon of unleaded gasoline peaked during Labor Day (the conclusion of the so-called summer driving season) at $3.057 per gallon according to the American Automobile Association. Since then they have fallen to $2.837 per gallon. More importantly, the price of a gallon of diesel fell to $3.185 after a series of record rates last week. At this time last year diesel rates were $2.123 per gallon. Currently, seven US refineries remain offline meaning that US fuel output capacity is only running at 11 percent. It is hoped that, however, that more and more of these refineries will begin to come back into production which will allow rates to continue to fall. Nevertheless, shippers should continue to expect to see fuel surcharges from carriers ranging 25 to 35 percent for trucked loads.