Lower ocean-freight rates benefit Canadian grain shipping

Ocean freight rates have pulled back from highs seen in November, helping Canada overcome the freight disadvantage it has into some markets compared to other exporters.

The Baltic Dry Index, which tracks global shipping prices, is currently around 2,700 points, which compares with the recent highs set in November of around 4,600 points.

David Przednowek, senior manager of ocean freight and terminal logistics with the Canadian Wheat Board, said in an interview that the general decline in freight rates has largely been due to concerns that actions being taken in the Chinese economy will slow the import demand in the country. The approaching Chinese Lunar New Year holiday has added to the slowdown in freight demand.

Canada is generally at a freight disadvantage into South East Asia compared to competing grain exporters Australia and Ukraine, said Przednowek. When the cost of freight is lower, as is the case currently, that freight disadvantage becomes less of an issue, he added.

He said there are other factors aside from the cost of freight that also come into play in the landed value of grain.

One factor possibly providing some unanticipated side benefits for Canadian grain shipments is the Somalian pirates in the Gulf of Aden. Some grain traders have said the pirates are dissuading some vessels from making the trip through the Suez Canal from the Ukraine, leading to increased costs for exporting Ukrainian grain.

"It's certainly a more perilous trip," said Przednowek, noting that increased insurance costs do have an influence on rates. However, he added that if the right precautions are taken, there are still ways to mitigate risk.