Container freight rates: Surging prices support scrap, challenge rice, US petrochemical markets

This is the second of a two-part series on the ripple effect caused by rising container prices. Part 1: Fresh surge in container freight rates propels key commodity markets to record highs

The unexpected strength in global container freight rates toward year end has driven price spikes in some markets, and added to the challenges faced by others.

In the most recent surge, the North Asia to North Continent freight rate jumped 92% day on day on strong demand to $5,000/FEU Dec. 1, a rate of increase not seen since the assessment was launched in 2017. North Asia to UK rates spiked to $5,600/FEU from $3,000/FEU over the same period.

Faced with a fast-approaching deadline for the UK to leave the European Union, and with pre-Christmas demand, delays have caused problems for both shippers and carriers. “It’s going to be a long winter for some of these importers — COVID has already pushed them to the edge of the cliff, now we are trying to push them off,” a carrier source said.

As a result of logistical delays, many of which have been exacerbated by the lack of empty containers in key exporting hubs in Asia, further issues appear on the horizon, with some carriers no longer taking bookings for loaded containers on back-haul routes from the UK and Europe, causing issues for exporters based in Europe in particular.

INDIA SCRAP PRICE RISE FOR 8 WEEKS

Sharply rising container freight prices are also adding upward pressure on containerized India import scrap prices.

Workable Indian import prices for containerized shredded material rose for the eighth consecutive week to Dec. 4 amid a strong international scrap market, with high container freight costs and limited container availability contributing to the increase.

S&P Global Platts assessed India import containerized shredded scrap at $385/mt CFR Nhava Sheva Dec. 4, up $20/mt week on week, the highest since March 23, 2018, when it touched $390/mt CFR.

Container freight prices have also risen sharply, with trading sources citing prices for 20 foot containers at $1,600-$1,675/TEU for the UK-India/Pakistan route, up from around $1,100/TEU in late November. This is equivalent to $59-$62/mt, or 15-16% of the current CFR Nhava Sheva spot price.

UK sellers said shredded scrap offers to India and Pakistan were limited, due more to concern over container availability than scrap supply at UK yards.

“The material is not really available to buy and it’s all messed up by container availability, as traders are having to constantly rebook containers,” one UK trader said. “If you ask for 30-40 containers, maybe only 15-20 turn up.”

RICE LOGISTICS HURT BY CONTAINER SHORTAGES

Reports of container shortages have become more frequent in the Thai market since mid-November and several exporters said high freight rates have deterred importers from concluding new sales.

One Thai rice exporter said tight container availability was affecting global supply flows and damaging Thai rice export competitiveness. “I saw news that our neighbors overtook us in exporting rice,” the exporter said. “Other countries are exporting more and have better choices for customers,” he added.

“The lack of containers and extremely high freight make business complicated,” a European buyer of rice from Thailand and Myanmar. “Tough times for rice trade in containers; it’s only getting worse.”

Traders in India said the freight cost to South Africa has risen from around $1,400/TEU to $2,000/TEU in recent months, while the cost of container freight to West Africa was double what it was three months ago.

This has reportedly encouraged buyers to switch to bulk purchases, causing congestion at India’s bulk port Kakinada, and delays in loading and berthing. One exporter said there was “massive demand” for conventional shipments/breakbulk.

“Container shipments are going to be a challenge for the next few months until COVID uncertainty diminishes,” a source said.

Some Pakistani exporters said they would arrive at the shipyard to find that shipping lines had reneged on their contract and given the space on a ship to another exporter for a higher price. Some exporters also expressed frustration at struggling to procure empty containers in recent weeks. As a result, many buyers are hesitant to commit to new business.

CHALLENGE FOR US PETROCHEMICAL EXPORTERS

Shipowners raised backhaul trans-Pacific rates this week to $600/FEU for US West Coast-to-North Asia shipments and $700/FEU for US East Coast-to-North Asia cargoes.

The increases added to the already difficult market conditions for some US exporters struggling to have their cargoes included in the large volume of empty containers being repositioned back to Asia as fast as possible.

But the backhaul container rate hikes also incentivized shipowners to load more US export products such as polymers, grains and autos.

Exporters from the US Pacific Coast, where ports have experienced the highest levels of congestion from Asian imports, have found it harder to find equipment and capacity than shippers from the US Atlantic Coast.

“I continue to hear testimonials regarding a lack of container availability, but I am aware of others who have yet to experience significant challenges,” said Mike Steenhoek, executive director of the Soy Transportation Coalition.

Polymer resin exporters from the US Gulf Coast, where export volumes have been relatively more balanced with imports, have had an easier time finding available container supplies.

At Houston port, loaded container import volumes in October were 135,175 TEUs compared with 97,185 TEUs for exports, while at Los Angeles port the ratio was 506,613 TEUs for loaded imports versus 143,936 TEUs for loaded exports.

As container freight rates and volumes from Asia and North America have escalated, Latin American importers and exporters have also found shipowners reluctant to shift capacity away from the shortest and busiest trans-Pacific routes.

Brazil has experienced a shortage of polyvinyl chloride resin, used to make pipes in home construction, due to the reduction in import. Domestic producers have not been able to cover the supply gap and remain sold out, market sources said.
Source: Platts