Freight costs on the rise

Reports The Economist, Nov 24th

All because of the price of oil? Apparently not. Part of the cause is “an ‘oceanic imbalance’ between the Atlantic and Pacific. Supply is spread across both oceans, even as demand is concentrated in Asia.”

As in so many of these stories, China takes centre stage. One illustration: Unable to satisfy its demand for iron ore from its traditional suppliers – India and Australia – China now imports significant quantities from Brazil. “It takes 3 times as long to move cargo from Brazil to China as from Australia … The cost of shipping iron ore from Brazil to China is now more than the cost of digging up the ore itself.” More of the world’s shipping is tied up bringing iron ore to China’s steel industry than ever before.

Similarly, the report describes how China has moved from being a net exporter of coal in 2001 to now being well on the way to being a net importer.

The takeaway for buyers: Expect freight prices to continue to rise until 2009 “when a huge number of ships are due to be launched” and downward price pressure will, hopefully, kick in.

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3 thoughts on “Freight costs on the rise

  1. Err, yes. November 24th issue. As referenced at the top of the posting. The Economist is one of my favourite publications (along with Private Eye). Feel free to provide a better summary if you like!

  2. A postscript, and a salutary example of the perils of taking one data point too far.

    Here are some more quotes from The Economist, Jan 12th 2008 in an article about the Chinese toy market, entitled “No Fun And Games”, and about the challenges facing Chinese toy manufacturers in the face of rising labour prices, an appreciating currency and customers who are becoming increasingly anxious about quality:

    “The only price that is falling, and so far only to a few locations, is for shipping. In part that is because there are more ships, but it may also suggest that demand is softening.”

    So much for freight costs being set to rise through 2008!

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