Low ocean freight rates good news for farmers

(Commodity News Service Canada) –– A lack of demand has resulted in the softening of ocean freight rates, which is good news for Canadian farmers.

David Przednowek, manager of ocean freight and terminal operations with the Canadian Wheat Board, said the lower prices have been attributed to poor supply and demand fundamentals.

“The market is coming to a realization that there are new vessels that are coming in, and there isn’t enough demand to keep up with the increase in freight, so it’s been pushing rates lower,” he said.

Grain, coal and iron ore are the main commodities that move by boat as far as dry bulk trade is concerned. Przednowek said grain accounts for only 10 per cent of the global dry bulk trade.

One of the reasons for the lack of demand for freight is the uncertainty regarding the global economy.

“Coal and iron ore are the two big movers. The North American, European, Japanese steel industries are in recovery mode, but they haven’t caught up to where they were two years ago, so the demand has diminished,” he said.

A number of countries have started using more of their own product, contributing to the lack of shipments, he said.

“Chinese demand has been strong, but they have been using more of their own iron ore to make steel of late,” he said. “They are still importing, but as not as much as they have been.”

Przednowek said more and more ships are coming into the market, with about 80 million more deadweight tons available to the market now than there was one year ago.

“In order for demand to soak up all that supply, dry bulk freight has to grow six or seven per cent over the next few years to keep up, and right now the forecasts aren’t for that to happen,” he said.

“Even though you have countries like China and India developing, the expectation is that they can’t keep up with all of the freight that is hitting the market. So medium- to long-term, the outlook for the market is pretty negative.”

“That’s good, because the softer the ocean freight rates are, the better it is for Canadian farmers,” Przednowek said.

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