Bulk boom doubles rates on west coast routes
Bulk rates on South America’s west coast should continue to climb into next year, but major mining companies have limited their exposure to high freight rates
THE WEST coast of South America has seen freight rates double as a result of the booming market for bulk ships, says Alfonso Simpson, shipping manager for Peru’s largest zinc and copper mine, Antamina. “Both freight rates and the timecharter rate have gone up considerably,” he says.
In the first half of 2002, rates to ship concentrates from Peru and Chile into Asia Pacific had hit lows of $18 to $19/tonne. Today these parcels to the same destination are being fixed at over $40, says Simpson. He predicts rates will creep even higher in coming weeks, as November and December are traditionally the months when freight rates reach their highest levels from the South American west coast. Companies will start clearing out their inventories with an already firm market, Simpson believes, pushing spot rates to new highs. Compañia Minera Antamina estimates it will export 1.7M tonnes of zinc and copper this year from its purpose-built port at Punta Lobitos. The privately operated port and mine opened two years ago, and last year exported 1.8M tonnes. Trade focuses mainly on Handysize and Handymax bulk vessels.
Fortunately for Simpson, about 70% of shipments are contracts of affreightment, mostly signed in mid-2002, providing coverage until the end of 2005, he says, and minimising exposure to high freight rates. He says the company is getting really good service from owners, which include Japan’s Shinwa and South Korea’s PanOcean, which cover the Asia Pacific routes. Norway’s Star Shipping and Van Ommeren Clipper from the US cover the Europe routes. Simpson says Peru’s mining industry is slowly recovering from low global commodity prices. Prices have risen in recent months. “The question is whether prices will be sustained to provide better opportunities to the mining sector in Peru, which is very important for the country,” he says. Lower-value shipping in Peru has been most affected by high charter rates in the bulk sector, according to Andrew Hardy from one of the country’s largest local charterers, Sercomar. Hardy says major mining companies have been protected by the huge upswing in spot rates as most of their cargo is covered by contracts of affreightment.
“On the other hand, it is possible that some traders who have future sale commitments but not much forward freight cover could be exposed to the increases in freight rates,” he suggests. Shipowners regularly doing business with long-term commitments along the west coast of South America are obviously suffering, depending on how much tonnage they have fixed on long-term charter. Hardy says exporters of fishmeal, one of Peru’s major commodities, have shifted to containers where possible. Half the fishmeal shipped from Peru is now moved this way, he estimates. “There is a fair amount of fishmeal that must be shipped break-bulk both to the EU and China, and undoubtedly the charterers are finding it very difficult to fix. At the moment the increase in freight rates has resulted in reduced sales to China. However, we think that this could be temporary, for if the freight market continues on this firm note, prices must eventually be adjusted accordingly”.
For liner trades, Consorcio Naviera Peruano (CNP) general manager Alejandro Pedraza described 2003 as a good year for volume, especially for high-paying reefer cargo. CNP handles business for the largest carrier to Peru – Chile’s CSAV, and related Libra container lines, which comprise about 20% of trade. Pedraza attributes the increase in reefer cargo to increased exports of perishables like grapes and mangos. Rates have held steady, he says. Another major agent, Tramarsa, was similarly upbeat. In the last 10 years, the agency has averaged annual growth of 15%, says its spokesman Mario Hart Potestá. The agency has registered 1,000 ship calls in the past 12 months, representing 10% growth. This was attributed to growing participation in tramp and bulk markets, strong competition and tariff reductions. Another agent, who declined to be identified owing to the small market, said: “Some lines are still opening their own agencies, adding more players to an overcrowded market. This leads most agents to cut costs with a sacrifice in the quality and safety of their operations.”
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