Low-Price Ocean Freight Rates Impact Grain Shipping

While barge and truck rates remain higher, shipping capacity is up and rates remain lower for ocean trade.

The freight market, which took a major price bounce in the wake of hurricane Katrina in 2005, continues to be volatile according to a report from Joe Sowers, market analyst for U.S. Wheat Associates. He notes in his report that ocean freight rates remain a bright spot that has caused some interesting discrepancies in the shipping business.

For example, Sowers notes freight rates peaked in May 2005 and have fallen near 30%. Thanks to diverging markets for different transportation modes it turns out that right now it's more expensive to send a ton of wheat down the Mississippi by barge to New Orleans than by Panamax vessel from Portland, Ore., to Japan; or from the Gulf of Mexico to Nigeria. However, Sowers does note that ocean rates did take a jump this week.

As for other modes of transportation, barge rates continue at 50 to 100% higher than a year ago. While down substantially from October 2005, they were still high. The cost to move that ton of wheat down the Mississippi was $27 per ton, about a 38% decline from the October peak - but still well above the $17 a ton it cost before Katrina hit.

Rail prices also remain about 10 to 25% above last year, which the ag industry is monitoring. Recent government hearings looked into rail costs for shipping commodities. Sowers notes that a month ago, shuttle rail cars on the secondary market traded at $150/car premium, adding $2 per ton to freight rates. For September, shuttle cars are trading at premiums exceeding $200 per car. These higher rates are bound to impact local basis in some markets for all crops.

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