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Evolving freight situation continues to disrupt Asia-to-West Africa rice trade

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Evolving freight situation continues to disrupt Asia-to-West Africa rice trade

Highlights

Shipping in containers deemed unworkable for West Africa

Cargo arriving all at once creating supply shocks in destination markets

Delays to shipments also creating "huge disparity" in destination pricing

Rising freight rates and the shift away from container shipments have continued to make waves in the Asia-to-West Africa rice trade in recent weeks.

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Breakbulk or split breakbulk shipments are now almost the only way traders can compete into West African markets, which have notoriously small profit margins. Container freight costs from Asian origins, such as Thailand and India, are typically reported as almost twice the levels of breakbulk, with the availability of containers also a persistent issue.

A Singapore-based trader for the region said: "Container shipments are not workable so we have all switched to breakbulk shipment." "[shipping in containers] makes no sense," a Europe-based trader said, who historically shipped almost exclusively in containers.

Shift to breakbulk

However, shipping in breakbulk is not without its own set of issues, which traders are finding out as more and more breakbulk ships loaded with rice arrive in West Africa. Delays are increasingly commonplace amid clogged ports. Additionally, current Asia-to-West Africa freight rates of between $130-$150/mt are significantly higher than the cost of delivering the rice which is arriving in destination markets now.

Governments attempting to control food inflation in these destinations is an added complication. In Senegal, the government capped broken rice retail pricing at West African Franc 15,000/50kg ($543/mt) in early September. While a trader for the country viewed this as workable "on paper," various middlemen taking cuts between the trader and the shopkeeper could hamper this.

Elsewhere in the region, local prices are also struggling to keep up with rising breakbulk freight rates, even when FOB costs have remained relatively static in recent months. One trader said that "the gap [between local prices and replacement costs] is a bit big now," with another adding that "we are struggling" to ship to the region with a positive profit margin.

A major Singapore-based trader said "local prices are not going up" in most destination markets.

Supply shocks

While government intervention is one reason behind this, an additional issue is the change in how rice is arriving in the region. Whereas containers allowed for a steady stream of arrivals into destination markets, split breakbulk shipments -- in which multiple traders are sharing a breakbulk shipment -- do not allow for this.

Destination markets are experiencing supply shocks: abruptly becoming inundated as breakbulk shipments arrive, with warehouses reaching capacity almost immediately, forcing traders to liquidate their positions and offload stocks cheaply.

"The market is going to be flooded with rice," a Singapore-based trader said about expected breakbulk arrivals in the Togolese local market. While local prices should be moving up as freight rates increase, how rice is now arriving in destinations is fundamentally hindering this.

Port delays

A further issue relates to the delays breakbulk ships are facing in origin ports. In India's Kakinada Port, wait times of 7-10 days or even longer have been typical. Monsoon rainfall has been slowing loading in recent months, with COVID-19 restrictions not helping.

India has been the most popular Asian origin for the past two years due to FOB price competitiveness. However, the issues related to port congestion and other origins becoming more price competitive are catching up with Indian exporters. "If you consider demurrage while waiting to berth, prices don't make sense anymore," a major Singapore-based trader said.

As a result of varying port delays and the volatile freight market, two ships that were chartered at two very different prices could be loading in a destination port at the same time. This has created a "huge disparity" in price expectations at destinations, according to one trader, favoring traders with cargo on ships which have faced delays.

Traders for West Africa's rice market are still attempting to find an equilibrium following recent changes to the costs of transporting rice and the manner in which rice is transported. Questions like who will foot the additional transportation costs and how the market will deal with supply shocks are still to be answered. Especially for smaller traders who are accustomed to trading via containers, the sooner these issues are resolved, the better.