While container freight rates are hitting record highs every week, bulk carrier freight rates are also rising sharply. The reason is that China’s imports of raw materials such as coal, iron ore, and copper have increased. The photo shows a bulk carrier waiting for shipment at Qingdao Port in Shandong Province, China. /Hankyung DB
Fares for bulk carriers carrying coal, iron ore grains, etc. have been soaring since the beginning of the year. This is the effect that factories that had been shut down due to the novel coronavirus infection (Corona 19) began to return one after another. Charter rates for liquefied natural gas (LNG) ships and freight rates for some air routes are also on the rise. The rise in container selection rates is spreading in all directions. According to the shipping industry on the 20th, the Baltic Freight Index (BDI), which is the bulk carrier freight rate index, was 1740 as of the 18th, up 27% this month.
Charter rates for LNG carriers are also rising rapidly. According to Clarkson Research, a UK shipbuilding market analysis company, the daily chartering fee for a 160,000 CBM (㎥) LNG carrier (based on a single contract) reached about 195,000 dollars on the 8th. It increased more than seven times from the level of $27,500 in July of last year. ‘Popular sections’ such as the United States to Japan and the United States to Europe can reach around $300,000.
The surge in freight rates for bulk carriers and LNG carriers is largely due to the recent increase in facility utilization rates at Japanese, European and North American factories that have reduced or stopped production after the Corona 19 crisis. In particular, Chinese steel mills and power plants are leading the rise in freight rates by rapidly increasing imports of coal, iron ore, and LNG.
The rise in container freight rates also stimulated bulk carrier freight rates. Containership freight rates, which have soared since the second half of last year, are turning to record highs every day. The Shanghai Container Fare Index (SCFI) jumped to 2885 on the 15th. It first crossed the 2000 line in late November of last year and then reached the 3000 line in two months. Released every Friday, the index is setting a weekly record since November 6th last year.
Domestic companies that need to import raw materials and export products they produce are in a logistics emergency. An official from a domestic chemical company said, “In the second half of last year, it was difficult to catch container ships, so we had difficulties in exporting. It is becoming.”
Freight soared as raw material imports surge… “I can’t get it even if I give it 4 times more than the bulk carrier”
China sucks in coal and iron ore and operates global factories one after another
In the second half of last year, an export company suffered an’emergency’. It was due to the’missing’ of the container ship in Busan Port. It was because of China. China began operating the factory in earnest in the second half of last year after taking control of the Corona 19 situation. The world’s major shipping companies flocked to China, where there is a lot of work. As most of the container ships were put into China, the world’s container ship rates fluctuated. Even if Korean companies added more money at Busan Port, they were unable to use container ships. The rise and shortage of container freight rates continues until this year.
China expands raw material imports
The bulk carrier freight rate index (BDI) and liquefied natural gas (LNG) ship charter rates surged in almost the same way as container freight rates in the second half of last year. This time, bulk carriers and LNG carriers are rushing to China. China’s increasing imports of raw materials are largely affected.
In China, stocks of iron ore and coal are rapidly decreasing this year. According to Bloomberg News on the 20th, China’s iron ore port inventory, which exceeded 130 million tons in December last year, declined by around 10 million tons in one month to reach 120 million tons. As the utilization rate of steel mills in China increases, iron ore inventory is rapidly exhausting. Steel mills in China that consume iron ore are recently increasing their utilization rates. This is because demand for steel is expanding, such as a surge in EV sales and construction work.
The increase in demand for electricity in China is also a factor. China, where the proportion of thermal power generation such as coal exceeds 50%, rapidly increased its imports of fossil fuels such as coal and LNG when a winter cold hit. Due to this impact, major shipping companies around the world are putting not only dry bulk carriers but also LNG carriers into China. China has led the bulk carrier freight rate by diversifying its import destinations to Southeast Asia such as Indonesia, as well as Australia, Brazil. Most bulk carriers have long-term contracts, and companies operate like dedicated ships. Only a few boats use it for a short time as a’spot (single shot)’ castle. As China wiped out some of these quantities, it became difficult to obtain additional bulk carriers and LNG carriers from Korea, Japan, and Southeast Asia.
It is also the cause of environmental regulations that are expected to be introduced next year. From next year, the International Maritime Organization (IMO) will reduce the sulfur content of fuels in all ships from 3.5% or less to 0.5% or less. To meet this, a desulfurization facility must be installed on the old ship, which takes 3 to 6 months. Shipping companies started building desulfurization facilities from last year. An official from a shipping company said, “If we do not meet the regulatory standards, we can become targets of countries around the world.” “This year, all major shipping companies will try to meet the regulations.”
Difficult situation for both export and import
As freight rates for bulk carriers surged following container ships, the difficulties for companies are increasing. It was the steel and chemical industries that were hit directly. Some companies even consider stopping production. An official from a petrochemical company said, “The raw materials that were decided to come from China last month have not yet come due to the shortage of bulk carriers.” said.
It is not until factory shutdown, but many companies are difficult. An official from SeAH Steel said, “The freight rate for bulk carriers between Korea and India has risen almost four times compared to the second half of last year.” An official from Kumho Petrochemical also said, “There are many difficulties in supplying raw materials from overseas,” and “We are monitoring the situation one by one in case of disruption in production.”
The situation of SMEs with weak bargaining power is even more serious. At the end of last year, there was a intensive logistical disruption on the US route, but recently, as freight rates for European and Southeast Asian routes have skyrocketed, small and medium-sized businesses with a high proportion of exports in this region are complaining about difficulties. Lee Seok-woo, CEO of Ideco I&C, who exports wallpaper fabrics to Europe said, “The proportion of freight rates in the product cost was less than 10% in the first half of last year, but now it has risen to 30%.” There is,” he complained.
There are also voices voicing about the’gap quality’ of some shipping companies. There are cases of unilateral changes or destruction of contract terms without prior notice. The president of a shipbuilding parts company said, “If you ask a shipping company for freight these days, the first word is that there is no room,” he said. “I am looking for an alternative such as delaying the contract, but I do not know how long I can withstand it.”
Reporter Ahn Jae-kwang/Choi Man-soo [email protected]