16 May, 2008 – Soaring freight costs - driven by panic buying of foodstuffs and massive demand from China to import iron ore – are adding further inflationary pressure to the price of basic commodities, experts warn.
The cost of shipping raw materials like grain rose to record highs this week as the Baltic Dry Index of shipping costs yesterday climbed by 3.9% to 11,067 points.
This globally recognised index has climbed by 150% in under 18 months - on top of a ten-fold increase between 2000-2007.
Peter Norfolk, research chief at ship broker Simpson, Spence and Young, said: “The main reason for the surge is demand for iron ore in China but consumption of commodities is high across the board.”
Another analyst said there were too few new ships entering the market to meet rising demand meaning the cost of hiring the largest vessels had almost doubled in the last year to US$200,000 a day.
Shipping experts also said that while iron ore was the major driver behind the price increases, surging demand for agricultural commodities and foodstuffs was triggering panic buying as countries aimed to bolster their reserve stocks.
Philippe Van den Abeele, of London-based shipping hedge fund Castalia, said: “The cherry on the cake is the fresh demand for Latin America’s grain and soybean exports.”
The increase in global consumption of commodities has also lead to congestion in major ports in Brazil, Australia and to a lesser extent in China. In many cases, turnaround times for cargo ships have risen. This has reduced the number of ships available at any given time - raising concerns that freight prices could be forced even higher.