Freight rates could fall in face of tricky headwinds

Morgan Condon


LONDON (ICIS)–Shipping rates have been a key cost pressure for the chemicals industry in the wake of the pandemic, but fundamentals – and therefore prices – may be set to change course due to persistent geopolitical pressures.

As logistics major Stolt Nielsen posted its highest net profit in 15 years for the second quarter and restated the company’s positive outlook for the rest of 2022, the company was still cautious of the challenges surrounding the market.

“Although we are starting to enjoy improving returns on our investments, we cannot ignore the many external challenges that lie ahead. The war in Ukraine is increasingly impacting energy supplies, particularly in Europe,” Stolt-Nielsen said.

“We remain cautious when making new investments, ensuring that the return hurdles account for higher inflation and funding costs in the future, and we are maintaining our focus on debt reduction to strengthen the balance sheet and continue to favour fixed rate loans to protect our cash flow against rising interest rates.”

Spot tanker shipping remains tight, despite a slight downward trend in fluctuating bunker fuel costs, which has kept freight rates flat for both intra-Europe and shipping outside of the continent, in contrast to the continued upward momentum in prices last week.

Deals are shifting from containers of 20-24-feet to break bulk, where goods are stowed on ships in individually counted units, where volumes can be as small as 4,000-5,000 tonnes for some industries, including the polyethylene terephthalate (PET) and purified terephthalic acid (PTA) markets.

Depending on regional fundamentals, this is also having an impact, as one trader stated that those bringing material in 5,000-10,000 tonnes in break bulk would see equivalent prices for current container costs.

“China PET prices got softer, and containers got cheaper. Shipping costs on a CIF [cost, insurance and freight] basis are below $300/tonne, so the cost is $6000/container,” the trader said.

While prices for 40-feet containers prices from Europe to Asia tracked increases in the latter part of June, rates for freight going in the opposite direction have been stable at a significant premium.

As bottlenecks persist, transporting smaller volumes – especially for markets where prices are sustained at high levels, such as PET – could keep material flowing to customers, but it is not without risks.

Shippers may have to pay demurrage charges if vessels are not unloaded in time and could face further costs if materials are stored in warehouses, depending on where the material is sent to.

One trader advised that the key river port in Duisburg, Germany was currently more than 90% full due to “too many empty containers”.

Another European polymer distributor had to send a vessel using break bulk to fulfil existing contracts as they have 800 containers sitting in Houston which were scheduled for shipping between January and June.

Now ships are forgoing docking in Houston as they are warned that they will have to wait for two weeks and are choosing to go to the next port rather than face the fortnight’s demurrage.

“Delays in container shipments are causing all the problems,” the distributor said.

“There is a lack of bags to put material in, a lack of drivers in trains, a lack of bagging facilities, a lack of trucks and truck drivers, warehouse space and warehouse people. The whole chain is just a total disaster.

“[Break bulk] is not really solving the problem. It is fulfilling existing contracts but costing an absolute fortune, as a temporary bail-out.”

The war in Ukraine has been another factor in disrupting the industry, as trade flows have had to redirect to avoid conflict zones, with ships going for long haulage, which is also limiting availability of vessels.

Sentiment indicates that supply chains will remain under pressure for the rest of the year, but longer-term fundamentals could balance out as more new capacity becomes available in 2023.

There has been an uptick in orders for new container ships, which have also been delayed in the wake of the pandemic but are expected to come into operation next year.

Front page picture: Containers are being moved in the Port of Rotterdam; archive image 
Source: Peter Dejong/AP/Shutterstock 

Focus by Morgan Condon

Additional reporting by Vicky Ellis, Marta Fern, Julia Meehan, and Caroline Murray

Infographics by Yashas Mudumbai


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