Bulk Commodity Freight Costs More than Double
Domestic users of sugar have become familiar with domestic freight increases by way of truck and rail, so it should come as no surprise that a similar situation is occurring in the world of bulk commodity freight.
The implications are higher tier 2 landed pricing, a raised 16s ceiling, and squeezed re-export credit values. Though still at historically great prices, these increased freight costs necessarily change the calculations used when buying world sugar against re-export.
Here is a quick snapshot of the spot month of the Baltic Index specifically for handy size vessels. The chart represents a weighted average of daily hire rates ($ per day) for a handy size vessel based on actual fixtures.
You’ll notice that vessels at the end of last year and beginning of this year were trading at around 10,000 $/day. That rate is now up in the high 20s. So, when taking this into our CIF calculations (cost, insurance and freight), the vessel freight alone has more than doubled. This snapshot doesn’t even consider bunker fuel, which has also seen a rapid increase.
Looking in a bit more detail, below is a snapshot of the same index, but uniquely showing different voyages. I have included two different time frames to draw the comparison.
Specifically, what is most applicable to us and Sugar, is the HS3_38 route (Rio de Janeiro-Reclada trip to Skaw-Passero). As much of our summer re-ex is pegged against Brazil, this run is a close comparison to shipping to the US east coast. In Jan21, this rate was $14,500 versus current rates of $40,522. To better translate that into real costs, that charter is probably something like 40-45 days (5 days to load, 18 days up to the east coast, and 20 days to discharge at Baltimore for example).
Taking the differential in hire rates over 43 days, you can see the increase of costs amount to over $1,000,000 which on a 30,000 mt vessel is 33$/mt additional. Again, this doesn’t even take fuel cost increases into account.
“The cost of bulk carriers that move grains and oilseeds from production hubs in the Americas and Black Sea to key consumers have roughly doubled from last year due to rising fuel costs, tighter vessel supply and longer port turnaround times amid COVID-19 curbs, according to grain and shipping sources.”
This recent Reuters article not only affirms the increasing freight costs, but also points to the high demand for vessels going to the Far East. Typically, you could get back haul rates to bring those vessels back to the continents or into the gulf, but since the Far East is so hot, that has disappeared, further driving the lack of supply of vessels needed to move sugar into the US from our primary areas of import (Central and South America and Mexico).
The cumulative impact of both domestic and global freight rates will invariably lead to higher commodity prices for the foreseeable future.