A significant spike in ocean freight rates, driven by strong demand for grain and coal vessels, is creating some turmoil in the dry bulk commodity market at the moment as consumers and the trade scramble to cover forward business.
In this context, the leading sea-freight index on London’s Baltic Exchange closed higher for the third straight week last Friday, with charter rates for the larger capesize and panamax vessel segments rising for five consecutive sessions to close at 2281, its highest level since September 2019.
The Baltic Dry Index (BDI) tracks freight rates for capesize, panamax and supermax vessels ferrying dry-bulk goods across the world’s oceans.
It is not only a reflection of the cost of shipping raw materials from supplier to consumer but also a real-time proxy of global demand for key commodities such as grain, coal and iron ore. It is considered one of the most important global economic indicators as it predicts future economic activity.
The panamax index, which accounts for 30pc of the BDI, is the best indicator of the cost of shipping grain.
It advanced 153 points, or 5.4pc, on Friday to close at 2975, its highest since September 2010.
That followed surges of 211 points, or 8.9pc on Wednesday and 239 points, or 9.3pc on Thursday.
It was up almost 33pc for the week, the largest weekly gain since the week ending 19 June 2020.
The average daily earnings for panamax vessels closed last week at an average of US$26,773, a rise of $6595 over the previous Friday’s close.
That equates to an increase of more than $0.13 per tonne per day on a 50,000t cargo.
Agricultural exports have been the biggest boost to the panamax and supramax segments in recent months.
Most of the pressure on the global dry-bulk shipping system emanates from China, with its enormous and growing passion for imported commodities such as soybeans, corn, wheat, coal and iron ore.
If Chinese consumers continue to buy agricultural commodities at record pace from South and North America, Europe, and to a lesser degree Australia, the availability of panamax vessels will stay tight for the balance of the year, and freight rates will likely remain high accordingly.
Seaborne trade in the Pacific basin, indeed, only accounts for 22pc of grain exports, while 58pc of global grain imports are in the Pacific, with South-East and North Asia the largest demand centres.
Since the major grain export regions, such as Brazil, Argentina and the US Gulf, are in the Atlantic basin, the average distance the majority of grain vessels must travel is much longer than those out of Australian ports to the same destination.
And the sizzling container market has also created more positives for dry-bulk shipping globally as some commodities often transported in containers are temporarily being transported as bulk cargoes.
The boxes, indeed, are becoming hard to secure and expensive.
Some consumers who traditionally buy in containers are looking at bulk options due to extended container-shipping delays, and the potential for substantial savings in their raw-material costs.
This is great news for Australian grain exporters, especially as they have a sizeable exportable surplus to clear.
Being an island nation nestled in the south-west corner of the Pacific Ocean does have its advantages.
The shorter distance from some key customers in Asia, relative to major competing origins, becomes their friend.
Australia global export reach is also extended in a rising freight market.
The pace of Australian exports has been solid over the past three months as Australia’s competitiveness has improved dramatically mainly because of the rise in sea-freight rates.
And this will be a critical competitive advantage while they will be measuring at head-to-head with others exporters as soon as the new crop northern hemisphere will be available from July onwards.
