Shipping costs

OILS & FATS INTERNATIONAL VOL 38 NO 6 JULY/ AUGUST 2022

EDITORIAL:

Editor: Serena Lim serenalim@quartzltd.com +44 (0)1737 855066

Assistant Editor: Gill Langham gilllangham@quartzltd.com +44 (0)1737 855157

SALES:

Sales Manager: Mark Winthrop-Wallace markww@quartzltd.com +44 (0)1737 855114

Sales Consultant: Anita Revis anitarevis@quartzltd.com +44 (0)1737 855068

PRODUCTION: Producti on Editor: Carol Baird carolbaird@quartzltd.com

CORPORATE:

Managing Director: Tony Crinion tonycrinion@quartzltd.com +44 (0)1737 855164

SUBSCRIPTIONS: Jack Homewood subscripti ons@quartzltd.com +44 (0)1737 855028 Subscripti ons, Quartz House, 20 Clarendon Road, Redhill, Surrey RH1 1QX, UK

© 2022, Quartz Business Media ISSN 0267-8853

WWW.OFIMAGAZINE.COM

A member of FOSFA

Oils & Fats Internati onal (USPS No: 020-747) is published eight ti mes/year by Quartz Business Media Ltd and distributed in the USA by DSW, 75 Aberdeen Road, Emigsville PA 17318-0437. Periodicals postage paid at Emigsville, PA. POSTMASTER: Send address changes to Oils & Fats c/o PO Box 437, Emigsville, PA 17318-0437

Published by Quartz Business Media Ltd Quartz House, 20 Clarendon Road, Redhill, Surrey RH1 1QX, UK oilsandfats@quartzltd.com +44 (0)1737 855000

Printed by Pensord Press, Gwent, Wales

The war in Ukraine has brought into sharp focus the key role of shipping and logisti cs in global commodity markets.

It’s not just how much grain or oil crops are produced, there’s the key questi on of how they can get to those needing them.

“Perhaps not since the Cold War have supply chain resilience and geopoliti cal turmoil loomed so large in global trade,” writes shipping consultant Michael King in World Grain. “The disrupti ons have arguably impacted the grain shipping trade more than any other, with grain prices and shipping costs soaring.”

Just as we went to press, Russia and Ukraine signed a landmark deal to unblock grain and oilseed exports from Black Sea ports (see p4). The re-opening of the ports could lift Ukraine’s export capacity towards 5M tonnes/month – on a par with its pre-war capacity – but obstacles, such as insurance and how ships will navigate heavily-mined waters, remain.

According to S&P Global Market Intelligence, total seaborne agri-bulk shipments from the Black Sea region fell 37% year-on-year to 11.2M tonnes in second quarter 2022, with reducti ons from Ukraine accounti ng for a large part of the loss. How quickly can Ukraine clear its large build-up of grain and oilseed stocks, as this could pose a serious storage capacity issue during its July-November harvest period?

Meanwhile, exports from Russia – also a global leader in grain, oilseed, ferti liser and energy products – are being held back by quotas, sancti ons and ship owners’ diffi culti es in procuring insurance. Much of export trade from Russia is going “dark” and obtaining informati on is getti ng harder and harder,” speciality bulk liquid ship broker Riverside Tanker Chartering Riverside wrote in its June market report.

The volati le nature of global events such as the Ukraine invasion and the COVID-19 pandemic has been refl ected in shipping prices, according to King.

The Balti c Dry Index (BDI) was below 500 in May 2020 as COVID-19 began its global spread but stood at 2,240 points on 30 June. The BDI is a daily index of average prices paid to ship dry bulk products such as grains/oilseeds, coal, sugar, minerals, cement, metals and ferti liser across more than 20 routes for Capesize, Panamax, Supramax and Handysize vessels. It measures demand for shipping capacity against the supply of vessels and is viewed as an economic indicator of growth and producti on. The Internati onal Grains Council Grains and Oilseeds Freight Index also shows that freight costs have also risen much faster than grain and oilseed prices since June 2020.

It is unclear which way dry bulk shipping rates will head. Some analysts believe they will remain high due to high bunker (fuel) and crude oil prices; and new Internati onal Mariti me Organizati on emission rules coming into force on 1 November, leading to more ship reti rements and higher compliance costs. However, others feel that slowing economic growth, strong domesti c producti on of bulk commoditi es in major importi ng countries, weaker demand linked to rising infl ati on and low ship deliveries this year might put downward pressure on rates.

As for shipping acti vity in vegetable oils, the enti re tropical oil freight market went “ballisti c” in May and rose even higher in June, with IMO2 rates from Straits (Malaysia) to Rott erdam reaching over US$170/tonne and IMO3 rates around US$120/tonne in June, according to Riverside. “Sustained demand … and ongoing market disrupti ons due to the war in Ukraine are expected to keep all markets fi rm over the summer months. Not surprisingly, this has given ship owners broad smiles. If you believe in only half of what you hear in the market place, we are all in for a challenging summer,” the company says.