Higher freight rates and delivery delays frustrate buyers

By Yoke Wong
Published: Friday, 09 June 2017

Container shipping costs increasing since end-2016; Uptrend expected to stay in the near-term; Delays and limited vessels availability

Rising freight rates over the past few months amid reduced vessels availabilities have delayed minerals shipments and many are expecting the logistical disruptions to continue in the months ahead.  

Container shipping costs from China have been increasing almost on a monthly basis since the end of last year, with some shippers facing difficulty securing vessels’ space for delivery, a number of traders and consumers told IM

As China is one of the largest industrial minerals suppliers, the higher freight rate has contributed to an increase in cost across a number of minerals, including fluorspar, calcined bauxite, brown fused alumina and magnesia.

According to one fluorspar buyer in India, the shipping cost from Southern China to India’s Nhava Sheva for a 20-feet container (fcl), which has a maximum weight-load of about 27 tonnes, has more than doubled to $600/fcl in May, compared to $250-300/fcl in April.     

While rates from China to Europe were last quoted at $1150-1200/fcl for delivery in May, up 20-30% from the previous month, a Europe-based minerals distributor said.

Rising freight rate was mainly due to "a combination of a shortage of containers and really rapid Chinese import growth," said analyst James Frew from London-based shipping consultancy MSI. 

The uptrend for the past five months followed depressed freight rates over the past few years as vessel supply outstripped weak shipping demand. But the bankruptcy of South Korea’s Hanjin Shipping, the world’s seventh-largest container carrier, in August 2016 removed a large numbers of vessels from service, disrupting trade routes and in turn lifted freight rates.  

Although Frew expects the rapid price increase to unwind quickly, in general, MSI expects the freight rates to trend up in the medium term.

Lower freight rate subject to availability

Some market participants have secured lower freight rates at $900-950/fcl from China to Europe for 2017, as they have made long-term contracts with big freight forwarding companies. 

However, container space are subjected to availability at the lower rate as some shipping companies prioritised delivery for higher-value cargo over cheaper minerals, the distributor and one US-based fluorspar consumer said.   

"These lower contract rates are subjected to space and container availability - this is why you hear containers are cancelled or not available, because the small Chinese and foreign traders book with agents who re-sell this space," the distributor said. 

"It’s the same like bucket travel shops overselling seats on flights," he added.  

Longer lead-time 

Some buyers are reporting longer delivery time due to shipping vessels adding stops en-route to pick up cargoes booked at a higher rate.  

As a result, the average lead time from Asia to the US has extended to six-eight weeks, instead of the usual four-six weeks, one US-based fluorspar consumer told IM.  

"They are trying to get the higher rate, they are putting through different routes to get more lucrative cargoes," the consumer said.  

"The shipping company is not accountable to deliver on time, there is no financial penalty…. It’s very frustrating, we are the one who bear the burden," he added.