Grain shipping costs to remain low

The cost of shipping grain around the globe is set to remain low for the foreseeable future, because of a significant imbalance between supply and demand.

A number of crises were blighting the shipping sector, pushing freight rates to an all-time low, the Global Grain 2008 conference was told by Chris Tomlinson, dry bulk analyst at Thurlestone Shipping, London, last week.

On the demand side, the downturn in the global steel market, which accounted for about 50% of the dry bulk trade when iron ore and coking coal were included, had had a major impact, he said.

A collapse in demand for steel in China, in particular, had led to a rapid increase in stocks there and a reduced import requirement. Iron ore exports from Brazil and Australia had consequently slumped, leaving a “massive hole” in the sea-borne trade.

On the supply side, improved efficiency at ports had cut queues of vessels and led to increased shipping capacity, said Mr Tomlinson.

The situation was compounded by the fact that there were many new vessels on the order books. The number of new dry bulk carriers in the pipeline amounted to over 70% of the existing fleet, he said.

How many of these would actually be delivered was questionable, especially as the credit crunch made it difficult for some shipyards and investors to finance their construction. But fleet expansion was inevitable, even allowing for the fact that most large ships over 20 years old were likely to be scrapped in the next few years.

At a time of financial crisis, with some dry cargoes being deferred or even cancelled, there was little chance of freight rates rising soon, he concluded.