June 2009  
 Food Outlook
  Global Market Analysis

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Market indicators and food import bills




Contributed by the International Grains Council (IGC) (http://www.igc.org.uk)

Ocean freight market (November 2008 – May 2009)


Following the collapse of the ocean freight market between June and October 2008, dry bulk rates touched their lowest levels in more than two decades. Rates remained extremely weak during the final months of the year and into January 2009, attributable to the shrinking volume of seaborne trade, particularly China’s sharply reduced mineral imports as its steel mills focused more on domestic raw materials. Due to the global financial and economic crisis, the shipping industry experienced the worst conditions since the mid-1980s, with many operators facing bankruptcy due to credit problems. Owners struggled to cover running costs, with an estimated 20 percent of the fleet, mostly larger vessels, laid up. More than 10 percent of the new building orders were cancelled. In February 2009, the market began to recover, particularly in the Atlantic. This was triggered by growing mineral demand in China, after its adoption of a substantial infrastructure stimulus package and falling steel mill inventories. As demolition of old ships for scrap accelerated and several new building contracts were cancelled, the resultant tightening in tonnage supply lifted rates in both the Atlantic and Pacific basins. Between January and mid-March 2009 the Baltic Dry Index (BDI) climbed by 170 percent, mainly reflecting sharp increases in the (large-vessel) Capesize sector. Over the same period, the IGC Grain Freight Index (GFI),1/ which does not include Capesize vessels, advanced by 25 percent. Rates subsequently faltered but in May Atlantic rates found renewed support from increased grain interest out of South America and the United States Gulf, as well as from the growing mineral trade.

In the Panamax sector, the rise in rates from end-January 2009 was underpinned by grains and soybeans chartering activity from the United States Gulf and South America. The most commonly quoted transatlantic round voyages rose from USD 9 000 to about USD 20 000 daily in March, before falling back to USD 11 000. The key United States Gulf to Japan rate, having reached a record of USD 130 per tonne in June 2008, and subsequently plummeted to only USD 24 per tonne in December, recovered to USD 44 per tonne by May 2009. On routes from the Black Sea to Asia, owners commanded a significant premium to sail through the Gulf of Aden due to high Suez Canal fees and piracy insurance premiums. Examples of Atlantic fixtures in May included a cargo of soybeans from Brazil to Europe at USD 18.00 per tonne, while rates to Far East Asia from the United States Gulf and South America were quoted at around USD 15 000 and USD 22 000 daily, respectively. Pacific rates were generally weaker than in the Atlantic due to an oversupply of tonnage and limited cargo availability. Nevertheless, since the lows set at the end of 2008, North Pacific roundtrips doubled, to around USD 13 000 daily. In the Pacific, timecharters for four-to-six months were reported at USD 13 500 daily, up by only USD 1 000 from six months earlier.

Having previously fallen the most, Capesize rates registered the steepest upturn between January and March due to China’s increased iron ore imports as domestic prices climbed. With many vessels still laid up, the market also responded to a shortage of early vessels in the Atlantic. Over the six months to mid–May 2009, the Baltic Exchange’s average of four timecharter rates rose by 120 percent, to USD 21 925 (USD 9 848) daily. The benchmark iron ore rate from Brazil to China climbed by 44 percent, to USD 18.45 per tonne, but substantially larger increases were reported on key coal routes from Australia and India.

In the Handysize/Supramax sector, poor returns led to an increasing number of ships being laid up at the end of 2008, mostly in the Mediterranean. In February 2009, the market saw renewed strength, with rates in the South Atlantic supported by tighter tonnage availability and a good volume of business, including grains. Rates out of the eastern Mediterranean and the Black Sea were also much firmer. For example, a wheat cargo from the European Union (Germany) to the Egyptian Mediterranean was quoted in mid-May at USD 20.00 per tonne, up by 20 percent since the beginning of the year and a trip from Argentina (River Plate) to Algeria at USD 39.00/tonne, 40 percent higher. Pacific rates were underpinned by increased chartering activity, mainly coal trading, with round voyages quoted at about USD 10 000-11 000 daily, up from USD 7 000-USD 7 500 six months earlier. In the period market, a one-year charter in the Atlantic was quoted at about USD 11 000 daily, up by 40 percent from similar quotations in December 2008.

Table 15. Ocean freight rates

USD per tonne (heavy grains) 12 May 2009 November 2008 May 2008
US Gulf to EU (B) (1)  30.0020.0083.00
US Gulf to Japan (B) (1) (2)  44.0028.00125.00
US Gulf to Korea, Rep (B) (1)  46.0029.00127.00
US Gulf to Algeria (A) (3)  31.0026.0094.00
Brazil to EU (A) (3)  40.0034.0096.00
1) Over 50 000 tonnes (Panamax). (2) Heavy grain. (3) 10-15 000 tonnes (Handysize)



The GFI distinguishes grain routes from mineral and other dry bulk routes also included in more general dry bulk indices such as the Baltic Dry Index (BDI). The new GFI is composed of 15 major grain routes, representing the main grain trade flows, with five rates from the United States, and two each from Argentina, Australia, Canada, the European Union and the Black Sea. Vessel sizes are adequately represented, with ten Panamax rates and five in the Handysize sector. The GFI is calculated weekly, with the average for the four weeks to 18 May 2005 taken as its base of 6 000.

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