Push for higher freight rates delays mineral shipping

By Davide Ghilotti, Yoke Wong
Published: Tuesday, 24 January 2017

Deliveries of some industrial minerals have been delayed as container shipping companies are giving priority loading to higher-value cargo. Minerals suppliers are reportedly having to pay higher freight rates in order to secure space for prompt shipment. Severe pollution in Tianjin also disrupted transportation to the port.

Although some traders had previously locked in lower freight rates through long-term shipping contracts in 2016, several sources told IM in December that container shipping companies were giving loading priority to more valuable cargo unless mineral shippers were willing to pay a higher freight rate.

"The shipping container [companies] do all the cherry picking, the higher value will be shipped, [lower value] containers will be postponed. I have this problem with a bauxite container," a Europe-based trader told IM at the end of December. 

The bauxite cargo in question was initially due for delivery from China to Europe in early August, but shipping took place in mid-September only after the Europe-based trader had agreed to pay a higher freight rate to secure cargo space, the source said.

"Finally we had to ship at $1,000/container rather than $700/container," he added.

A second Europe-based trader has been experiencing the same issue since October. 

"Many cargoes which were booked by intermediaries are now stuck, not moving because the container companies, while they accepted the lower rates some time ago, are just placing low paying cargo at the back of the queue and telling the cargo owners/shippers, ' sorry no empty containers’ or 'no shipping space available’," the second trader said.

A number of fused alumina and bauxite shippers also told IM that they are struggling to find shipping space for their cargoes from China to Europe.

A source from one Europe-based container shipping company confirmed that there is a strategy within the industry to try to increase profitability by raising freight rates, following years of losses and squeezed margins.

"The increase is 20-40%, depending on the location, I think everybody is trying to recover from Hanjin, you see the remaining players are trying to do something," the shipping source said.
South Korea’s Hanjin Shipping, the world’s seventh largest container carrier, declared bankruptcy in August, disrupting trade routes and leading to speculation that freight rates would move higher.  

Freight rates

The sharpest freight rate increase reported to IM is from China to Europe, but the impact of the increase has also spilled over to other shipping routes such as from Africa to Western Europe, the shipping company source said.   

As China is one of the biggest industrial minerals suppliers in the world, the higher freight rate is set to raise the buying cost of minerals, traders said.

The freight rate for a 20-tonne container stood at  between $1,000-$1,100, on 23 December, according to the shipping source.

Regions

The freight rate increase has mainly affected container shipping but the impact on bulk shipment is less clear, the European shipping firm told IM.

With China closed for business during the Spring festival between 28 January and 4 February 2017, many market participants rushed to secure cargo space ahead of the Chinese holiday.

Meanwhile, the situation of congestion at South African ports remains challenging for local suppliers.

Securing both bulk vessel space and containers became harder throughout Q4, as availability of cargo was limited and fewer ships were in operation, sources told IM.

To ensure deliveries are shipped on time going forward, at the end of 2016, local companies were booking space in advance with ship liners for 2017 – a practice that has never before been necessary cargo availability was not an issue.

"We are already booking ship space for the end of January and for February," IM was told by a local industrial minerals supplier on 22 December.

Severe transport disruption in Tianjin to hit mineral deliveries

Yoke Wong

In response to harmful smog levels in Tianjin, China, the local government imposed mass restrictions on motor vehicles at the end of December. The transport disruption was expected to hit industrial minerals deliveries as Tianjin is one of the main export routes from China.

Transportation was severely disrupted in Tianjin, one of China’s biggest port cities, amid worsening smog levels as the local government imposed stringent checks on all vehicles.

Tianjin’s local government announced on 15 December that the smog level in the city would trigger a red alert  – the most critical level –  on 18-19 December. In response to the severe pollution, the authorities rolled out a series of contingency plans.

Tianjin’s port, Xingang, is the biggest port in northern China and is the main export point for most of the industrial minerals from China. The disruption was expected to delay minerals deliveries globally.

As part of the measures, government officials imposed strict checks on all motor vehicle exhaust fumes, and those that did not meet environmental standards will not were not allowed on the road.

A number of motor vehicles and medium-to-large size diesel trucks were restricted, with the exception of emergency situations. To prevent pollution levels from worsening, construction and any related activities were halted, including the transportation of gravel, dregs and construction waste.

Schools were also shut and people were urged to remain indoors by the Tianjin government.

According to a statement by the Tianjin Environmental Protection Bureau released on 21 December, the government also conducted anti-pollution inspections on 473 companies, including cement producers. Many bauxite and brown fused alumina processing facilities are also based in Tianjin.

Tianjin Port Group Co. Ltd, the operator of Xingang port, announced on 19 December that it had complied with the city’s contingency plan and implemented measures to ensure the smooth operation of the port. According to Tianjin port, about 130 vessels passed through the port between 16-18 December, with cargo throughput at 1.99m tonnes.   

This wave of intensifying anti-pollution checks comes after the Ministry of Environmental Protection (MEP) urged local authorities in six provinces – Beijing, Tianjin, Hebei, Shanxi, Shandong and Henan – on 30 November to take swift action against harmful smog levels.