After months of rapid improvement in several transportation markets, most have leveled out into gradual-growth mode.
Dry bulk market stabilizes, while container shipping surges
Ocean freight rates stabilized in July, helped mostly by China's increased monthly iron ore imports. The 51.2 million mt of iron ore that China imported in July reflects a 9 percent increase from June, and also the first increase after three consecutive months of declines. Chinese steelmakers still attempted to limit imports from Australia and Brazil-home of the Big Three iron producers-by boosting imports from India. Currently, Indian ore makes up 10 percent of China's iron ore import market, but that may change if India begins to focus on their own domestic steel industry by limiting exports of raw materials, as many predict they might.
Despite the monthly increase in iron ore imports, China continued to boost their domestic ore production. Chinese ore is lower grade and more expensive to produce than imported, so it is unlikely that they will be able to phase out imports entirely. Their appetite for raw materials is still strong, although crude steel production fell month-on-month by 4 percent, to 51.7 million mt. Finished steel exports in July also fell from June, by 19 percent to 4.55 million mt. However, the latter figures can be attributed to China cancelling export tax rebates for several steel products in mid-July.
Dry bulk rates have, for the most part, remained up in August, with Capesize rates in particular spiking in the middle of the month-rates for the week of August 7-13 shot up 62.6 percent from the previous week. Handymax rates also experienced a week-on-week rise after a slight weekly dip of 3.5 percent in the beginning of the month. Parcel shipment rates did not fluctuate much throughout the month, and rates reported at the end of July remained the same through August. Current Handymax rates to the US for large tonnage of steel (i.e. at least 15K tons of HRC or wire rod) are as follows:
Baltic Sea to US East Coast: $60 to 65mt
Baltic Sea to US Gulf Coast: $55 to 60mt
Black Sea and Mediterranean Sea to US East Coast: $60 to 65mt
Black Sea and Mediterranean Sea to US Gulf Coast: $55 to 60mt
East Asia to US Gulf Coast: $60 to $65/mt
East Asia to US West Coast: $55 to $60/mt
As for container shipping, volumes soared as the end of summer approached. According to notable shipping research firm Banchero Costa, full 2010 container volumes are expected to exceed pre-crisis volumes in 2008, a remarkable achievement considering 2009 registered the first volume decline in history.
North American rail recovery bolstered by steel-related shipments
Traffic in the North American rail sector continued to improve as of the week ending August 21, due mostly to the emerging harvest of grain in the US. Steel-related products also saw significant year-on-year improvements in cumulative volume, with shipments of metallic ore, for instance, increasing by 69.1 percent compared to the same period of 2009, according to the Association of American Railroads (AAR). Metal product shipments rose 51.1 percent, and metal scrap and waste increased 19.9 percent. Overall, North American rail freight volume for the first 33 weeks of 2010 on 13 reporting US, Canadian and Mexican railroads totaled 12,173,572 carloads, up 10 percent from 2009. Containers and trailers for the 33 weeks totaled 8,766,042, up 14.8 percent from last year.
Aside from continually improving volume levels, another indicator of the rail sector's overall recovery is news that Lake Oswego, Oregon-based Greenbrier Cos Inc, a major manufacturer of railcars, recently received about $130 million worth of new railcar and refurbishment orders. According to a report published August 25, the company is contracted to build more than 1,000 new double-stack intermodal containers and covered hopper cars, in addition to re-engineering and modifying about 1,100 existing double-stack platforms.
Fuel surcharges have been relatively steady throughout the summer, lending much-needed stability to the recovering sector. Surcharges for September will remain the same as August, at 17 percent based on July fuel prices of $2.911 per gallon, according to major carriers Union Pacific and Burlington Northern Santa Fe. To put the prices in perspective, surcharges in September 2009 were 13 percent based on July 2009 fuel prices of $2.540. However, current surcharges are a drop in the bucket compared to September 2008, when July 2008 fuel prices of $4.703 resulted in a whopping 35 percent surcharge.
Subdued growth ahead for US trucking
Demand in the US trucking sector has also continued to improve, and availability, which had been a challenge throughout the summer, has loosened up as the non-grain agriculture season has slowed down. However, trucks are still scarce in certain pockets of the country, most notably in the Southeast. Overall, the trucking market is moving toward stability, and truck drivers and companies are still raking in healthy profits.
The American Trucking Association's (ATA) seasonally adjusted For-Hire Truck Tonnage Index increased 1.5 percent in July compared to June, and rose 7.5 percent compared to July 2009. However, ATA Chief Economist Bob Costello expects subdued tonnage growth in the months ahead, although he believes that tonnage will post moderate gains, on average, for the second half of the year. "After accounting for the reduction in supply over the last few years, even small gains in tonnage will have a larger impact on the industry than in past," Costello said.
Echoing Costello's cautious optimism, presenters at the first annual Commercial Vehicle Outlook Conference this week in Dallas, Texas agreed that growth will be slow, but according to trucking indicators, there is no need to worry about a double-dip recession. Eric Starks, President of logistics consulting company FTR Associates, expects a "growth recession", which he described as "positive growth but at such a slow pace that it may feel like a recession to trucking companies." Starks believes that the industry, overall, is back to normal, and although it is "going to tread water for the next several months at least," he said, "by the middle of next year, things will accelerate."
US barge prepares for grain-led price spikes
Availability in the Southern US remains tight for the barge market, as many vessels are still positioned up North for the current grain season. Therefore, spot rates for imported steel in the Gulf are on the rise right now, and depending on how well the grain market fares this season, rates might remain high throughout the rest of the year.
Another factor that will likely have a significant impact on barge rates is the recent drought in Russia that destroyed a quarter of the nation's wheat crop. US exports of grain to Russia are expected to surge, which will subsequently spike freight rates for all cargos, including steel.
On the Great Lakes, the barge market once again posted cargo gains in July-the 10,550379 net tons carried reflect a 2 percent increase from June and a 40 percent increase compared to July 2009. Iron ore cargos increased by 70 percent compared to year-ago levels, and coal loadings were up 16.2 percent year-on-year.