Logistics

Bulk freight buys business amid container shortage

Liz Wells, March 25, 2020

Viterra’s Port Lincoln terminal is one of many Australian ports where government rules and recommendations and company precautions are being observed to minimise risks from COVID-19. Photo: Viterra

AUSTRALIAN grain shippers are showing a clear preference for bulk over containers in nearby slots as COVID-19 continues to disrupt supply chains and port operations around the world.

This is due to a shortage of 20-foot containers caused by COVID-19’s disruption of port operations and manufacturing in China, and the continuation of blank sailings, the shipping term for cancelled sea-freight services, between Australia and north Asia.

Market Check head of strategy Nick Crundall said concerns were growing around the availability of containers.

“These will be elevated as the outbreak and corresponding government restrictions continue to develop,” he said.

Australian Bureau of Statistics grain export data for February is due out early April, and some in the market are predicting a sharp drop in containerised grain shipments for the month due to the impact of COVID-19 before volumes pick up in March.

Mr Crundall expects March ABS data will show a return to strong container exports, especially out of Victoria, as volume becomes the key to surety of shipment.

“Although availability is sufficing currently, execution risks are elevated, and this means exporters are treading carefully to continue adding volume into their programs.”

Bulk rates halved

It’s a sentiment echoed by others in the trade, who say bookings for small numbers of containers on vessels were in greater danger of being cancelled than larger volumes, and bulk is safer still.

It is encouraging traders and overseas consumers typically using containers to swing towards the relative security of the bulk-vessel supply line.

“Bulk is more attractive, and it’s likely we will see some container guys work together and put some bulk business on out of Victoria especially.

“It’s the last frontier for available wheat exportable surplus as South Australia and Western Australia run dry over the next four to six weeks.”

The nominal prompt freight rate for bulk grain in a panamax vessel from southern Australia to China is roughly US$12-$15/tonne, around half of what it was for most of last year.

Containerised grain can be shipped from major Australian ports to China for about $20/t, within the range of around $15-$22/t seen in recent years, but business, based on limited container availability and reduced sailings, is thin.

IKON Commodities director Ole Houe said bulk rates per tonne from Australia to Asia were around half the price of container rates.

“They’re the lowest they’ve been in more than 20 years, and the container trade has been atrocious,” Mr Houe said.

“There are still blank sailings in place,” Anchor Logistics director and principal Bob Brittles said.

“Imports are still down and all export sailings into north Asia are heavily booked, with some lines short of 20-foot and 40-foot containers certainly in April and into May.”

Bunkers cheap

The Brent Crude Oil index is now sitting at less than $25 per barrel, down from its recent high of $63.27/barrel seen on 6 January before Russia and the United States started a price war.

This slump has lowered the cost of bunker oil used to fuel ships, but logistics issues caused by the impact of COVID-19 on international port movements have firmed prices somewhat.

The Baltic Dry Index (BDI) is the global indicator of bulk ocean freight including grain, and dropped to 415 points on 7 Feb, a low not seen since February 2016, when it dropped to 291.

Since 2016, the index has mostly traded above 1000, and peaked in September last year at 2462.

It closed overnight at 603.

Affinity Shipping general manager Perth Anderson Da Silva said “extremely low” fuel prices have allowed bulk freight rates to fall.

Crews to consider

Port-access conditions to limit the spread of COVID-19 have added a little to freight costs.

Mr Da Silva said many ports around the world were not allowing vessels to enter port limits in less than 14 days from their last port of call.

Seven to nine sailing days separates WA grain terminals from nearby Asian ports, namely Singapore and those in Indonesia.

Mr Da Silva said their proximity meant the cost of anchoring the ship to wait out the 14 days came at a cost.

“Ships might have to wait for five days before the pilot can board the ship to bring it in to the berth.

“This cost has to be passed on in the ship owners’ calculations for freight.

Mr Da Silva said bulk freight rates were so low at present that this extra cost would not be prohibitive, and would not be considered demurrage.

“Every port is taking measures now to stop the spread of the virus, but grain hasn’t stopped.”

SA finds favour

South Australian ports are an extra two or three sailing days away from export customers compared with those in WA and Victoria.

Trade sources have said this was working in their favour as vessels loading or discharging are not sitting idle at either end of their journey to wait out self-isolation periods.

Apart from T-Ports Lucky Bay facility, which is now loading its first bulk vessel, Viterra owns all of South Australia’s bulk grain terminals.

It is in the midst of a busy export and transshipment schedule and, like all Australian terminal operators, is doing all it can to minimise the impact of COVID-19 on its staff and essential visitors.

“At this stage there has not been any impact on exports or domestic movements,” Viterra said in a statement to Grain Central.

“We will continue to closely monitor government guidance and work with other industry participants and our customers to ensure we are able to minimise any potential future impacts.

“We are closely monitoring all advice relating to COVID-19 from federal and state government authorities and are adopting risk minimisation measures as per our response plan.

“We are also taking steps to pre-emptively strengthen our operations and logistics to provide timely delivery of products and maintain our high standards of quality and food safety.

“These actions are also designed to ensure business continuity, with a focus on being able to keep operating our food and feed supply chains, and continue meeting the needs of our customers during this period.”

Port precautions

Southern Ports manages the ports of Albany and Esperance, both home to CBH Group terminals, and Bunbury, where Bunge has its only Australian terminal.

Crews arriving at its ports have been advised they are required to adhere to a 14-day on-board isolation period from the day they left their international departure port.

Australian Border Force and biosecurity officers are responsible for border clearance processes, and Southern Ports said vessels that report ill persons will undergo a human health inspection on arrival prior to the vessel being granted entrance to the port.

In addition to government officers, the pilot from the receiving port, as well as shipping agents and marine surveyors, interact with crews on grain vessels, and isolation periods have been designed to protect all involved.

 

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