More bulk freight vessels laid-up as demand weakens
As international trade has continued to soften, so have ocean freight rates for steel shipments to the US. However, despite the rising number of ships sitting idle, the slow demand has made vessel availability for steel transport scarce. With the low bulk ocean freight rates, it is only profitable for charterers to do business for larger tonnage voyages, but with the weak steel demand and tight credit availability, it is difficult for steel traders put enough tonnage together. As an executive of one steel logistics provider told SteelOrbis this week, "The problem is that most can't or aren't able to finance a cargo of 15,000 mt in this market, let alone sell that much either."
So, while ocean freight rates are no longer in a free-fall, more ships are sitting idle and less international trade is transpiring. However, some international steel shipments are being made via container ships, which are more readily available due to the downturn in trade of consumer products (although more container liners are being laid up as well).
Current per metric ton Handymax rates for large tonnages (i.e., minimum 15k tons of rebar, wire rod, hot rolled coils) are as follows:
Baltic to East Coast: $25 to $28/mt
Baltic to Gulf Coast: $23 to $26/mt
Black Sea and Mediterranean to East Coast: $30 to $35/mt
Black Sea and Mediterranean to Gulf Coast: $25 to $30/mt
East Asia to Gulf: $30 to $35/mt
East Asia to West Coast: $25 to $30/mt
Ports struggling as imports, exports dry up
Although they have been heavily impacted by the slowdown in both imports and exports, some North American ports are still doing fairly well as they continue to diversify their business and turn their focus to the few profitable sectors during this time of recession.
The Port of Jacksonville saw an increase in tonnage of eight percent through the first four months of its fiscal year (beginning October 1, 2008), which the port attributes to its ability to handle a broad range of cargo. While container, breakbulk and automotive trade are all expected to be down this year, ports that handle military, project, and wind turbine cargoes will likely be better able to weather the economic storm this year.
On the other hand, many ports on the West Coast, which rely primarily on trade with Asia, have been hit harder than Gulf and East Coast ports, which trade with a wider variety of regions. In February, imports to the Port of Oakland are expected to be down 22 percent from the same month of last year, while imports to the Port of Tacoma are expected to be down 29 percent and Seattle's imports are expected to be down 39 percent. The Ports of Los Angeles and Long Beach are also suffering due to the falloff in cargo, seeing imports decline by a combined 18.1 percent in February from last year, according to the LA times.
The latest available international trade data from the US Commerce Department show that imports and exports declined for the fifth consecutive month in December, with imports of all goods and services falling 5.5 percent and exports falling 6 percent. However, both US exports and imports set a record for the full year of 2008.
Railroads facing lower volumes, new regulations
US railroad cargo volumes have shown a trend of double-digit declines for nearly every month this year. Last week (ended February 21), volumes sank 14.2 percent compared to the previous year, while year-to-date, shipments on US rails are down 14.7 percent compared to the same period of 2008. Although railroads saw tremendous profits in 2008, they, too, are now being adversely affected by the freight slowdown, with major railroads like Burlington Northern Santa Fe (BNSF) cutting staff and capital expenditures. More rail cars are sitting idle as business has waned. The Association of American Railroads estimates that a staggering 30 percent of their cars have been placed in storage.
At the same time, railroads are facing more heat from customers for what consumer groups allege are excessive rate increases. Two new bills have been presented to Congress, which the groups say will result in fairer prices. The railroads, however, warn that such legislation could lead to new regulations and hurt stock prices.
On the fuel surcharge side, rail rates continue to drop. Major carriers Burlington Northern Santa Fe and Union Pacific will both lower their on-highway diesel fuel price (US average)-based carload fuel surcharge to 9.5 percent as of April 1 (from 10.5 percent in December) This compares to the 21.5 percent fuel surcharge instituted by these railroads in April 2008. The last time these carriers' fuel surcharges dipped as low as 9.5 percent was almost four years ago, in July 2005.
Truck cargoes, orders continue to slide
Similar to rail volumes, truck cargo volumes are a key indicator of economic health in the US. And, as with the state of the economy, the vital signs are not looking too good. The American Trucking Association's Truck Tonnage Index declined 10.8 percent in January, reflecting a slightly less sharp of a decline seen in December (12.5 percent). ATA's chief economist Bob Costello warned that any sustained recovery for the trucking sector is at least several months away.
In addition to US domestic truck volumes, weaker surface trade between the US and its North American Free Trade Agreement (NAFTA) partners isn't helping things either. According to the Bureau of Transportation Statistics of the US Department of Transportation, trade using surface transportation between the United States, Mexico and Canada was 13.1 percent lower in December 2008 than in December 2007, with December being the second consecutive month of year-to-year decline greater than 13 percent.
And in more bad, but not too surprising, news for trucking, new truck orders are also still on the decline - preliminary data released this month showed commercial truck orders for all major North American OEMS fell by 60 percent in February compared to last year, to 6,176 units.
On the fuel surcharge side, based on the national on-highway diesel price as of March 2 of $2.09, as of March 4, the national average fuel surcharges for US trucks is 11 percent for LTL (less than truckload) and 21 percent for TL (truck load).
Special Focus: US stimulus-funded transportation projects on the way
In important news for the US transportation sector, President Obama and Transportation Secretary Ray LaHood announced this week the formal release of funding from the recently signed economic stimulus package to be allocated for transport projects around the country. States can now use a total of $27 billion in stimulus funds that for the repair and rebuilding of highways, bridges, railroads and ports.
"We are seeing shovels hit the ground," the President told an audience at the Department of Transportation March 3, touting the implementation of the first installment, which was awarded to rebuild a stretch of road in Maryland. Obama said that more than 200 additional construction projects will commence across the country in the next two weeks
Obama also announced at the DOT visit the formal start of a consumer and business lending initiative, under which the Treasury and Federal Reserve has set aside $200 billion to buy up consumer debt. The program can also include market securities backed by commercial and government vehicle fleet leases and certain heavy equipment.
A break-down of how much money that each state will receive in transportation funds can be found at http://www.recovery.gov