High bulk freight rate predicted to continue in 2004

Soaring shipping costs, fuelled in part by China's voracious demand for raw materials and a lack of new ships, are likely to continue to push up the price of transporting iron ore, coal and grain well into next year, analysts and brokers were quoted by Reuters Friday.

Since dry-bulk freight prices first exploded in late September through mid-October, skyrocketing freight has continued to smash records, with the price rise pausing to catch its breath only for a week or two over the past three months before resuming its dramatic climb.

Importers bear the brunt of the higher transportation costs initially, but these are automatically passed on to consumers, for whom rising freight rates are factored into the costs of goods.

The key U.S. Gulf-to-Japan Panamax route for carrying grains in 55,000-to-80,000-tonne vessels, averages $51 a tonne, up from around $47 a tonne in mid-October, with no easing in sight.

That equates to around $34,600 per day for the voyage while on the haul from the U.S. Gulf to Europe, Panamax rates average $27 a tonne, or $30,000 a day.

"We really began vaulting at the back-end of September through October -- historically speaking there's been nothing to match it and it hasn't peaked yet," said Tom Cutler of Clarksons shipbrokers.

In the Pacific and Southeast Asia, Panamaxes are paying $40,000 a day for short trips, or $38,500 for vessels staying longer in the region or ballasting back into Atlantic waters.

"Fundamentals remain very strong -- trade growth in these key commodities -- iron ore, coal and grain -- is set to continue, and growth of the world's bulk-carrier fleet at around four percent a year of new ships isn't expanding quickly enough," he said.

Analysts at Galbraith's shipbrokers said that with the South American grains export season on the horizon, ship owners could begin locking in on long-haul maize and soya bean runs to the Middle East and Asia from March, tying up more of the overworked freight fleet.

The leap in time-charter rates on larger Capesize ships, in excess of 80,000 tonnes deadweight and used to move iron ore and coal, which has driven the dry freight boom, is even more startling.

According to Galbraith's, Capesize time charters have risen more than 1,000 percent since January 2002 while Panamax time charters have risen 700 percent in the same time frame.

The smaller Handymax sector -- vessels under 55,000 tonnes in size employed to carry commodities like sugar -- has also spiked, but the climb has been less dramatic.

Analysts and brokers say the bulk-freight bonanza has happened because of a combination of factors hitting the market in quick succession.

Not least, they say, has been China's booming economy and its massive appetite for iron ore. That drove the Capesize market, which in turn dragged the Panamax sector higher as charterers sought out any seaworthy vessel that could do the journey.

At the same time, U.S. grain exports have been strong said Cutler, with exports to Asia particularly active with the effect of eating up scarce ships.

Cutler said there have been other factors too that have added fuel to the fire.

Strong demand for coal into Europe at the end of September to replenish dwindling stocks amid strong power demand, coupled with an Indonesian coal strike and Chinese coalmine closures, as well as Poland defaulting on supply has seen much stronger demand for the fossil fuel and, logically more ships to move it.

Aggravating the tightening tonnage picture was China's decision to scale down coal exports.

"That turned the Pacific market (on coal) upside down," said Cutler, explaining that buyers South Korea, Thailand and Japan had to turn to sellers from further away in Indonesia and Australia.

"Nothing looks like it is going to bring this market down and there is no huge supply of new ships coming into the market in the next three years," Cutler said.(*)