CNS Canada — The ocean floor remains one of the few unexplored mysteries of the world — but commodity shippers are now exploring how much lower the floor can go for the cost of ocean freight.
The Baltic Dry Index (BDI) was quoted at 325 points on Thursday, marking a new low since records began in 1985, and only two weeks since falling below 400 points for the first time ever.
The index was trading above 1,200 as recently as the beginning of August, 2015, but has struggled over the past five months.
The BDI, compiled daily by the London-based Baltic Exchange, provides an assessment of the price of moving major raw materials by sea, including grain.
An overcapacity of ships, the slowdown in Chinese demand for building materials, weakness in crude oil, and declining commodity prices have all been cited as contributing factors to the lower freight rates, according to freight analysts.
As far as Canadian grain and oilseed exports are concerned, the lower freight rates even the playing field in some cases by lessening the importance of shipping costs in the final price to the buyer.
For example, while Australia will always be closer to China than Vancouver, lower freight rates lessen the importance of shipping costs in the final price.
However, declining rates are already causing some shipping companies to dock their boats and others to go out of business completely.
— Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.