From Here to There: Is Shipping the Cheapest We've Seen Since 2008/2009?

Spend Matters welcomes a guest post from Nick Peksa of Mintec, Ltd.

Transnational shipping is an integral part of the modern world economy, approximately 5% of the total value, and the cost and availability of shipping has direct effects on consumers around the world. Ocean-going shipping is the preeminent method of trade between nations with the majority of goods traded carried by sea.

Since the economic crash, the cost of shipping has mainly increased due to demand and the rising cost of fuel. This has climbed steadily for the past couple years to the point where many firms have altered their supply chains in order to remain competitive (mainly by reducing the number of hubs they use).

Shipping is an expensive business -- the typical daily charter rates during 2011 were $11,000 for Capesize vessels; $15,500 for Panamaxes and $16,000 for Supramaxes.

The shipping market suffers from imperfect knowledge. There is a significant information lag between the purchasers of services and the providers. Market opinion, therefore, affects the freight market just as much as the actual supply and demand of ships and cargoes. It is therefore difficult for the shipping services market to clear, giving rise to inaccurate and volatile pricing.

The number of different types of ships available can have a marked impression on prices for transport of differing goods. For example, some vessels can only be used for bulk shipping of liquefied gas or crude oil. The number of vessels being delivered to operators and how many are being scrapped also has an impact on the availability of service and hence the price.

Bottlenecks can particularly affect tankers. With almost half of the world's oil passing through a handful of relatively narrow shipping lanes, sometimes complicated by the fact that they are shallow as well as narrow -- this limits the size and draft of the tankers that can be used. These points include the Straits of Malacca, the Suez and Panama Canals, the Bosporus, and other important shipping lanes whose closure, for whatever reason, would alter the entire world's supply patterns.

Demand for shipping has in the past few years certainly increased rapidly from emerging markets such as China, India and Brazil -- this is in addition to the more established markets such as the US and the EU. These nations both consume large amounts of primary inputs and supply large volumes of consumer goods.

In the current economic client, the price of fuel is high, shipping demand for bulk material transportation is low and shipbuilders have until recently reported full order books. Could now be a good time to look at your shipping contracts? We are seeing some of the cheapest shipping ever, matching those prices levels of the economic crash in 2008/2009...

-- Nick Peksa, Mintec, Ltd.

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