By Peg Zenk LESSONS ESSONS ES SSONS S SO S SONS ON ONS O N SI NS SIN S IN I N L Through a decade of ocean freight upheaval, CHS adjusts to improve efficiency, reduce risk. ow ocean freight rates in recent years appear to have provided smooth sailing for grain exporters. But, as with other global businesses, the shipping industry is still reorganizing after the 2008 fi nancial crash, when global buying stagnated and the bottom fell out of the shipping market. Since then, some shippers have trimmed fl eets and replaced outdated vessels to become more effi cient, while others have gone out of business. Now, after nine years of readjustment, there are signs the industry is stabilizing, with a rebalanced global fl eet size and economic growth in major world economies, including China. But shippers aren’t the only ones who have streamlined their operations. CHS and other grain exporters have reset shipping processes and renovated facilities to accommodate evolving transportation demands. tracks the cost of shipping bulk commodities such as iron ore, coal and grain. “Iron ore comprises the most tons of any commodity shipped over the ocean, so the iron ore market and the BDI tend to move together,” says Justin Cauley, grain marketing ocean freight manager for CHS. “From a shipping standpoint, when it comes to getting U.S. grain to other countries, our competition is other commodities.” By the 2007–2008 season, shipping demand was so great that vessel owners could set their terms, including raising demurrage (the fee charged when a vessel is at a terminal too long). “Demurrage got as high as $100,000 per day per vessel, compared to today’s rate of $18,000 to $20,000 per day,” Cauley explains. That rapidly growing shipping demand spurred orders for new cargo ships, which typically took four to fi ve years to build after the order was contracted. Many of the new ships were still being built in shipyards in Japan and China when economies crashed in 2008, explains Mike Klein, senior ocean freight merchandiser for CHS. “Most of those new vessels have entered service in the past decade, requiring shippers to scrap many older vessels, some only 15 years old,” he says. “The average vessel life used to be 20 to 25 years. In recent years, Glo Nearly 10,500 bulk ships transport commodities around the world. Ocean Freight Rate Extremes In the years leading up to the global fi nancial crisis in 2008, China’s demand for raw materials grew rapidly, with that country using three-fi fths of the world’s shipped iron ore and one-quarter of all shipped coal. Ocean freight rates boomed to an all-time high of 11,793 on the Baltic Dry Index (BDI) in May 2008, more than 12 times the current index value. BDI 18 JULY/AUGUST 2017 CHSINC.COM
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Lessons in Global Shipping
Peg Zenk
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