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High container freight rates leave commodity traders scrambling for alternatives


Commodities that typically ship in containers turning to dry bulk vessels

Trading terms evolving to manage logistical challenges

Intermodal transport reliability attracts shippers despite high costs

  • Author
  • Baoying Ng    Brian Ng    Samuel Chin    George Griffiths    Stuti Chawla    Parisha Tyagi
  • Editor
  • Wendy Wells
  • Commodity
  • Agriculture Metals Petrochemicals Shipping

Commodities across the metals, petrochemicals and agriculture sectors that typically ship in container vessels are increasingly turning to dry bulk vessels and other modes of transport as container freight costs soar, market sources told S&P Global Platts March 25.

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The Platts Container Index, a weighted average of the spot freight cost on key container trade routes, was last assessed at $4,495.59/FEU -- more than 3.5 times higher than a year earlier.

With container rates on some key routes currently four times higher than previous record highs, some cargo owners are seeking alternatives. This has boosted rates on smaller coaster and Handysize vessels, especially in the UK-Continent, with some scrap cargo owners opting to take bulkers rather than containers to reduce costs.

"It's costing me almost $200/mt to move my goods from China to Europe, whereas this time in 2019 I could expect to see a charge of $50 or $60/mt for the same cargo," a UK-based importer said.

"With rates on containers looking to stay significantly high for some time as carriers employ void sailings, I expect my arbitrages will close. I have to take a full vessel even if I can't fully load it or consolidate cargo, and even then, it's still cheaper than box freight -- it's madness," the importer added.

Ferrous scrap contract terms evolve

In the ferrous scrap market, tight availability of container space and decreased schedule reliability has resulted in contract terms evolving to mitigate risk for both buyers and sellers.

Spot contracts may now provide the seller with the ability to deliver from multiple origins instead of one, while shipment dates are for longer periods.

"One [containerized] contract may now be reflecting origins from the US, with options of coming from Europe too these days, or vice versa," a trader in west Asia said. "This is just in case we are unable to get shipping space from either side."

With the increased competition within the bulk market from other containerized commodities shifting preferences, mini-bulk freight rates ex-Japan were heard to have doubled, leading to traders with outstanding contracts to deliver burnt by surging delivery costs.

The cost to ship 5,000 mt of scrap metal from Japan to Vietnam had surged to around $50-$60/mt from $35-$39/mt in Q4 2020, market sources said.

Petrochemical traders switch to break bulk

Polymer sellers in China have started offering cargoes on an FOB instead of delivered CFR basis due to tight container availability and poor schedule reliability. This initially left buyers scrambling for containers, and prompted some to move to bulk carriers.

"For some polymers, where end-users are small and fragmented, the move to bulk cargoes is difficult, but the shift to bulk has started for other segments where buyers have larger units and deeper pockets," a trader in India said.

This shift is clearly visible in purified terephthalic acid — a solid chemical used for making polyester clothing and plastic bottles -- where more buyers are switching to break bulk carriers for shipments to destinations such as India.

The shift started February and has gained traction as buyers figure out ways to handle additional costs such as insurance, demurrage, damage and other port handling charges that are usually lower with containers, one source said.

Around 40%-50% of PTA arriving in India from China in February was by break bulk vessel, traders in India said.

Buyers are banding together to fill up 21,000 mt bulk vessels to transport PTA from China to India, sources said, and the trend was expected to continue as long as there was a container crunch in China.

Asian sugar traders left behind

Container buyers of Asian sugar were holding back on bulk purchases due to high costs and logistical challenges. While it is possible to move white and refined sugar in bulk shipments, traders said it was costly and challenging, and there were not many refined sugar buyers with the flexibility to switch to breakbulk shipments.

"It is possible for container buyers to move sugar in bulk, but generally it doesn't make sense logistically," a sugar trader said.

In addition, the rise in freight rates for dry bulk cargoes has made this option as unattractive as containers, traders said.

As a result, sugar traders are opting to defer demand from destination buyers in Q1.

Market sources said a 25,000 mt Handysize vessel from west coast India to Jakarta now costs $45-$60/mt, up from around $20/mt in Q4 2020.

The cost to move 25,000 mt of sugar from Thailand to Indonesia hit a multi-year high at $28.50/mt Feb. 18, almost doubling from $14.30/mt at the start of the year, Platts data showed.

Weakening demand for nearby shipment sugar was being reflected in a narrower structure between the New York No. 11 May and July sugar futures to a 24-point inverse March 23 from a 50-point inverse just after the March 2021 futures contract expired.

"The high freight has led to destination deferring demand, which caused New York May-July 2021 spreads to collapse," a Singapore-based trader said.

Interest in intermodal transport

Another increasingly popular option was a mix of containers, rail and land.

"Trucking services from Singapore to China then rail to Europe is pretty hot currently," a Singapore-based source said. "Major multinational companies are looking at road transport because for ocean they do not get certainty even after paying a premium, but land transportation provides visibility." The source estimated the entire cost at around $30,000 per 40-foot truck.

"Even though this is almost double ocean freight from Singapore to Europe, customers are asking for this service due to the greater reliability," the source said.

Interest in intermodal transport was also seen in Europe.

"Intermodal rates from southern Europe to the north are still really firm; people can't afford delays to goods in northern Europe so they are shipping to transshipment hubs in Italy and Spain and then railing their goods inland," a container carrier said.

Container freight rates from North Asia to the Mediterranean are still at a discount to the North Continent, but the carrier conceded that once rail freight costs were added, this route via the Mediterranean was more costly than direct container freight to the North Continent.

"It's up to you; pay another $1,000/FEU for rail when the costs are already high anyway, or pay around $10,000/FEU regardless and run the risk of cargo being rolled [delayed to next shipment] or stuck waving at the shore for some weeks, like they have offshore west coast North America," the source said.

Another source said pricing pressure from containers and dry bulk may have spilled into rail.

"Now there is a huge rise in rail freight and space is very limited on rail," a Hong Kong-based logistics provider said.