Slow Start to the Year for the ECSA Agricultural Commodities Trade
After a few weeks of limited activities at the end of last year, demand for seaborne transportation of agricultural commodities from South America’s east coast has rebounded and stabilised. Still, freight rates have suffered over the past few weeks as cargo order volumes are significantly lower than a year ago. In addition, a decline in long-haul voyages has contributed to falling tonne-mile demand.
The ECSA Grains Trade Unlikely to Support Freight Rates in the Near Term
Freight rates in the mid and small-sized dry bulk segments have experienced significant headwinds since the beginning of the year, with their Baltic Exchange spot indices losing considerable ground. The gauges for the supramaxes and the handysizes have recorded year-to-date losses of around 30 per cent. However, the panamaxes have suffered somewhat less, but the cumulative losses for the past weeks nevertheless exceed 20 per cent. While the past few weeks’ performances show some similarities with developments during the same period last year, the starting points were much lower for this year. As a result, the gauges are currently considerably lower than they were twelve months ago.
Elevated geopolitical risks, an uncertain economic outlook in parts of the world, mounting concerns over tariffs and other trade barriers, and the earlier Chinese Lunar New Year are all factors that contribute to current headwinds for freight rates. In addition, the seasonal recovery in cargo ordering activities for seaborne transportation of grains and oilseeds from South America’s east coast has been significantly weaker than last year, with developments broadly in line with 2023.
Since the beginning of the year, aggregate cargo order volumes for seaborne transportation of agricultural exports from the ECSA have declined by approximately 43 per cent compared to the same period in 2024. Among the dry bulk segments, the supramaxes have faced the stiffest headwinds, with a drop of around 48 per cent. Still, the panamaxes and handysizes have also recorded significant downward pressure on demand. As a result, all segments involved in shipping South American grains and oilseeds have seen freight rates suffer.
On the other hand, the demand from the South American grains and oilseeds trade is broadly in line with the situation during the early stages of 2023. While the total demand is on a similar scale, a breakdown by segment highlights diverging fortunes. The supramaxes have had a weak start to the year, even compared to the volumes recorded in 2023, and have seen demand nearly fourteen per cent lower than two years ago. In contrast, the panamaxes and the handysizes have recorded higher cargo order volumes over the past few weeks than two years ago.
The marginal loss of momentum during the past week has seen weekly cargo order volumes stabilising, suggesting that the seasonal recovery for the South American grains and oilseeds trade will remain less spectacular than last year. Hence, a repeat of developments during 2023 may be on the cards, with volumes taking longer to build up. Rising uncertainties over trade and tariffs, combined with recent exchange rate volatility, may translate into shippers and importers wanting to adopt a wait-and-see approach. Still, the harvests in South America promise to be sizeable, with Brazil projected to deliver a record-setting 322 million tonnes. However, based on developments so far, any support for freight rates looks set to be gradual rather than spectacular amid changing behaviour.
Downward Pressure on Long-Haul Voyage Demand
While demand softened marginally last week, higher cargo order volumes for agricultural commodities loading on the east coast of South America bound for the distant shores in the Far East and Southeast Asia continued to rise. The development offset some weakness in demand from importers in the Mediterranean and the Middle East, providing a limited boost for tonne-mile demand.
Still, compared to recent years, the long-haul seaborne trade to ports in Southeast Asia and the Far East accounts for a smaller portion of cargo order volumes year-to-date. In 2023, long-distance voyages accounted for approximately 48 per cent of cargo order volumes, while the share was around 43 per cent last year. However, this year, it has retreated towards 41 per cent. As a result, aggregate cargo order volumes for grains and oilseeds heading for distant shores are 46 per cent lower than last year and 14 per cent below the levels recorded in 2023.
Despite aggregate global demand for South American agricultural commodities being broadly in line with the same period in 2023, the relative decline in demand from importers in the Far East and Southeast Asia suggests that any support for freight rates from the trade will remain weak. Also, with the Lunar New Year almost upon us, the recent rebound for the long-haul trade may take a breather over the coming weeks.
Headwinds for Demand in SE Asia and the Far East Weigh on ECSA Volumes
As highlighted above, demand for seaborne transportation of grains and oilseed to ports in Southeast Asia and the Far East has been weaker since the beginning of the year compared to the same period in the past two years. However, this does not suggest that Chinese and other regional importers have changed their origin preferences, with market shares for ECSA, the US and the rest of the world remaining broadly in line with recent years.
While market shares have stayed stable over the past month, aggregate cargo order volumes for agricultural commodities discharging in ports across Southeast Asia and the Far East are weaker than during the same period in 2023 and 2024. The decline is more than 40 per cent compared to last year and around sixteen per cent compared to two years ago.
The decline in demand has affected exporting regions more or less equally. Hence, importers have not changed their preferences but have a reduced appetite for imported grains and oilseeds. While demand in the area for imports from ECSA has rebounded from low levels in recent weeks, it will need to rise further and remain elevated to support demand and freight rates in the Atlantic.
For more information on Shipfix and on how to leverage our data for decision-making and market analysis, please drop an email to enquiries@shipfix.com
