Freight challenges for Australia’s upcoming grain export program
As commodity prices have risen steeply over the past year, so too has the cost of global freight. High prices, slow and delayed shipping and difficulty getting containers has been a challenging dynamic for all Australian exporters, including ag, according to Rabobank senior analyst Cheryl Kalisch Gordon.
“With a great outlook for commodity prices, positive outlook for winter crop production and a world in need of Australian grains, could freight be ‘the fly in the ointment’ for a strong export program in 2021/22?” she asks.
“Container freight costs have increased ten-fold from pre-Covid-19 levels and dry bulk shipping costs are up close to five-fold.
“For containers, this is primarily due to an imbalance in the location of containers and vessels between import and export regions, created by successive shocks to demand followed by faster recovery in some regions – especially China – than others.”
For dry bulk shipping, Dr Kalisch Gordon says the price rise has been mostly due to very strong global demand for commodities, but also a lift in demand due to some shippers moving their cargo to smaller dry bulk vessels to avoid high container freight pricing.
“For both container and bulk freight, shipping fleet efficiency has been impacted by Covid-19 restrictions,” she says.
These tight freight markets, she says, have also been impacted by out-of-the ordinary events.
“The blockage of the Suez Canal in March this year by container ship the Ever Given was one such example.
“More recently, constraints on capacity at some Chinese ports, but most notably Ningbo (the world’s third busiest cargo port), due to COVID detections, required diversion of ships to ports such as Shanghai, Xiamen and Shenzhen, causing vessel congestion in those locations.
“This is exaggerating the already stretched global freight complex.”
While Ningbo is expected to fully open again soon, Dr Kalisch Gordon says delays and additional demurrage (penalty) costs will result at both Ningbo and other Chinese ports in the short-term.
“The cost of ocean freight is set to remain high over the next 12 months,” she says.
“For container freight, this is due to an expected ongoing imbalance in economic recovery in different regions – which stymies the efficient movement of containers – while growth in demand for container vessels is also forecast to outpace growth in capacity.
“For bulk freight, costs are also set to remain high, given strong global demand and trade in commodities and low new shipping capacity coming to market.
“With a path to the normalisation of costs is not forecast to begin before Q2 2022.”
Dr Kalisch Gordon says all regions of the world are experiencing shipping challenges. However, shipping lines have been prioritising high-volume routes, such as from Asia to the EU and US, where two-way trade options are greater and allow more efficient use of ships and containers.
“Some ports, including some in Australia, are not being serviced or not serviced with the same regularity,” she says. “With this dynamic, containerised grain exports can expect continuing challenges, especially for smaller exporters who cannot charter their own vessels or command a sufficient portion of ship space to secure a service.”
For dry bulk shipping – the majority of Australian grain exports – higher-priced shipping should underscore Australia’s competitive advantage of being near to South East Asia, she says.
“With strong global demand and high prices cushioning the impact of freight challenges on export demand and margins – plus our close proximity to important grain markets – freight will hopefully not be ‘the fly in the ointment’ for a strong export program in 2021/22.”
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Rabobank Australia & New Zealand Group is a part of the global Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has nearly 120 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 38 countries, servicing the needs of approximately 8.6 million clients worldwide through a network of more than 1000 offices and branches. Rabobank Australia & New Zealand Group is one of Australasia’s leading agricultural lenders and a significant provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 94 branches throughout Australia and New Zealand.