Ocean Bulk Fleet Expanding

Alan Barrett

Alan Barrett

Higby Barrett LLC

Second quarter 2019 ocean freight rates for shipping bulk grains were lower than last year, but 4 percent higher than the first quarter.  Despite the relatively low ocean freight rates, Drewry Maritime Research reports a 2 percent increase in the dry bulk fleet with another 3 percent of the existing fleet scheduled for delivery during the second half of 2019. According to the U.S. Department of Agriculture (USDA), “Between December 2012 and June 2019, the global dry bulk capacity has increased by 180.5 million deadweight tonnages (mdwt), a 27 percent increase. During the same period, the Panamax vessel fleet has increased by 61 percent to 65.9 mdwt.”

So, with ocean freight rates slightly above the four-year average, why are the ocean carriers expanding? With the lower Mississippi River approved for dredging to 50 feet and the Panama Canal’s new set of larger locks, Post Panamax vessels appear to be the ideal size for transporting soybeans to China.

The U.S. is a soybean surplus country that is dependent on exports, especially the Center Gulf.  Due to Asia being an extremely long distance from the U.S., ocean freight rates play a major role in the price a farmer ultimately receives.  The ability to load heavier effectively reduces the average per metric ton cost. Lower transportation costs ultimately result in higher profit margins for every non-transportation player in the value chain.  A larger ocean fleet comprised of larger vessels also reduces the odds of shipping delays.  The expanding bulk ocean fleet is a positive for America’s soybean growers.