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 say.
"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 since March.
"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."