Wheat Letter: Global Growth Forecast Likely to Support Higher Ocean Freight Rates

As the world’s economies begin picking up pace, the increasing demand for raw materials is pushing up ocean freight rates worldwide.

A less volatile freight market is possible but there are factors that suggest rates will remain higher for some time.

Aristides Pittas, CEO of EuroDry, noted recently that dry bulk rates in January were the highest in a decade.

“The period from 2000-2010 was an extraordinarily good decade for dry bulk;
in 2010-2020, it was an extraordinary bad decade,” he added.

However, as another industry insider noted, “a lethargic decade for the [ocean freight] industry is behind us.”

Rates for Panamax and Supramax vessels are double what they were at the same time last year, ahead of the global shutdowns brought on by the spread of COVID-19.

Why Freight Rates are Increasing

Dry bulk demand is overwhelmingly driven by China’s buying spree, which accounted for 48.5% of all dry bulk-ton miles in 2020, reported BIMCO.

Unlike many countries last year, China’s economy grew by 2.3%.

China’s growth translated directly to demand for grains, coal, iron ore, and other commodities delivered in dry bulk vessels.

Another cause is a diplomatic dispute between China and Australia that has left 70 bulkers carrying coal anchored off northern China.

China is looking elsewhere for coal while Australia is finding other export markets, leading to longer shipping times and tying up the vessel supply on longer shipping routes.

News of President Biden’s plans to push a significant U.S. infrastructure plan could also affect demand.

Martyn Wade, CEO of Grindrod Shipping, said shipping demand could be “through the roof” if deliveries of building materials like steel and cement tie up smaller ship sizes.

In fact, Chinese steel exports in March were 40% above January and February, respectively.

That is a four-year high according to Marine Strategies International (MSI).

For the full story from the U.S. Wheat Associates' Wheat Letter, click here.

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