Freight rates have generally trended lower over the last few months but more recently there has been some evidence of increasing rates. This may reflect the likelihood that reduced export supplies of grain from Black Sea ports will result in longer ocean voyages for grain destined to major North African importers, whether from North America or the Southern Hemisphere later in the year.

This is, however, likely to have a limited impact on the overall ocean freight market as grain and oilseed cargoes are now a relatively small share of total dry bulk cargoes. An acceleration in the growth in global economic conditions would sustain the recovery, while a stall in the recovery from recession conditions could result in further erosion in rates.

The relative stability of the dry bulk ocean freight rates has perhaps been the most salient feature of the ocean freight market this year. The market for Capesize vessels has remained relatively volatile (Graph 2). In recent years the Capesize market, which is dominated by iron ore and coal cargoes shipments to China, has been particularly sensitive to economic conditions. Economic conditions impact the Chinese steel industry and its need to import iron ore and coking coal. Cargoes are many sourced from Brazil and Australia.

Given more diverse cargoes and ocean routes, the market for Panamax and smaller vessels used for grain shipping has been more stable. The tendency of past years for a surge in demand for iron ore shipments and Capesize vessels (which resulted in escalating freight rates and tended to spill over into the smaller vessel markets) has moderated. The only occasion when the two markets moved very much in unison was in late 2009 when Chinese infrastructure was stalled by early and extreme winter conditions. This necessitated the imports of a wide variety of commodity normally sourced within the country.

That the tie between markets for Capesize vessels and smaller vessels has been less of a factor over the last twelve months may indicate that recent expansions in the ocean fleet of Capesize vessel is starting to match the longer term import requirement of the Chinese steel industry. A caveat is necessary here in that recessionary conditions have deflated growth in steel demand, perhaps allowing ocean freight capacity to catch-up. A resumption of normal economic conditions may again put pressure on expansion of the ocean fleet.