Soaring Freight Costs Will Squeeze Traders, Boost Food Prices

December 5, 2017 10:55 AM
 
Cargo ship

It’s getting more expensive to transport commodities around the world, threatening to squeeze profits for global traders and raise food prices.

The Baltic Dry Index, a benchmark of shipping rates, surged 73 percent in 2017 to a four-year high because of a slowdown in new bulk freight capacity. More than 85 percent of global trade in grains and oilseeds is transported by dry-bulk carriers, according to Rabobank International.

Higher shipping costs will make agriculture goods from farther away less competitive and could push up food prices, the bank said in a report Monday. The United Nations’ Food & Agriculture Organization expects the world food bill to be the second-highest on record this year, driven by more expensive freight and rising demand for foodstuffs.

Freight Surge

"Higher global freight rates are expected to have an increasing influence on grains and oilseed trade dynamics and trade flows in 2018 as the cost of dry-bulk sea freight increases," Rabobank said in an emailed statement.

Asia, a major grain importer, will be especially affected because of long distances and reliance on dry-bulk carriers to bring in food staples. Australia’s close position will boost competitiveness in Asian markets, while other suppliers in South America, the U.S. and countries in the Black Sea region face pressure, Rabobank said.

Growth in demand for dry-bulk shippers is likely to surpass supply in the next two years, leading charter rates to rise 10 to 20 percent. Higher oil prices are also making bunker fuel more expensive.

"Importers may also opt to pass the rising freight costs to customers," Rabobank said. "Consumers should be ready to face increasing food prices."

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