Ferrous scrap exporters large and small
looking for more containers and break-bulk vessels as well as
cheaper ocean freight rates might have a long await ahead.
A steep rise in demand for dry commodities
like iron ore, coal, cement and grain has pushed up dry bulk
cargo rates as well as container rates, industry analysts
"Clearly there has been a lot of demand for
dry commodities and that has pushed up dry bulk freight rates
for all dry bulk vessels. Separately, TEU (20-foot equivalent
unit container) rates are roughly $1,750 on average from
overseas ports into the United States, whereas they were about
$1,650 in the final quarter of last year, so they are up about
6 percent year to date," according to Gregory Lewis, an
industry analyst at Credit Suisse First Boston.
Break-bulk cargoes are a lot more expensive
as well. Global average earnings on a Handymax vessel (which
can carry about 45,000 deadweight tonnes) are around $60,000
per day in today's market, he said, up from about $43,000 last
year and $20,000 in 2006, and they should remain strong through
the end of the year. The high dry bulk freight rates have led
some shippers that traditionally have used dry bulk carriers to
switch to containers to save on costs, Lewis added.
In a newly released research report, Eric
Glover of CanAccord Adams, said that the Baltic Dry Index
(BDI), a measure of dry bulk shipping rates, has nearby doubled
since February to record levels due to "soaring worldwide
demand for all types of bulk cargo, including iron ore, coal,
grain and scrap metal." For scrap exporters, ocean freight
rates for a shipment to Turkey from the U.S. East Coast have
climbed to about $100 a tonne, a 30- to 40-percent increase
"Bulk cargo ships are in high demand," Glover
said. "There is very tight capacity in the bulk cargo ship
market overall, including the vessels used to transport ferrous
scrap, which include Handymax ships and Supramax ships (40,000
to 50,000 tons)."
Two U.S.-based shipping companies-DryShips
Inc., the largest dry bulk shipping company in the United
States, and Excel Maritime Carriers Ltd.-recently reported
fleet utilizations of 99.1 percent and 95 percent,
respectively, which Glover said "speak to the strong demand for
bulk cargo ships on a global basis." Because of the tight
capacity in the dry bulk shipping market, Glover believes scrap
exporters might face delays in scheduling shipments, with some
cargoes potentially slipping from one month to the next.
The bulk carriers transport not just scrap
steel but also iron ore, coal and cement. Pricing has gone up
because of demand for dry commodities worldwide, typically into
Southeast Asia. Credit Suisse's Lewis said he expects demand to
remain very robust in the short term. "We expect emerging
markets' industrial growth to trend at 9 percent, and that
indicates strong demand for dry commodities. The dry bulk
market is going to remain tight in 2008 and 2009," he said.
The difficulties in obtaining not only
containers but also space on container ships is largely a
result of the falling value of the U.S. dollar and the strength
of bulk cargo rates, Lewis said.
U.S. containerized exports rose about 20
percent in the first three months of this year. Since the dry
bulk rates are so high, exporters are figuring out other means
to move products and materials overseas.
Lewis said he doesn't see any immediate
relief through the addition of new vessels to the existing
fleet of bulk cargo carriers. "Like any cyclical industry,
there are a lot of new ships being built. It's a question of
the timing of the delivery," he said. "Over the last few years,
there haven't been a lot of new ships built. I think in 2008 we
are looking at 6- to 7-percent fleet growth year over year. But
demand at this point is just outstripping supply."