Economist: Ocean freight costs aid U.S. exports
An economist with the consultant IHS Global Insight said U.S. export prices remain competitive, primarily because of low ocean transportation costs.
'There has been concern that with the current spike in commodity prices, the landed cost of our exports would tame or minimize demand from foreign buyers,' said IHS Global Insight Economist Brandon Kliethermes. 'This was the case in 2008, when commodity prices rose to record highs, making delivered commodities somewhat uncompetitive. Today, the situation is dramatically different, in that commodity prices are valued somewhat lower than in 2008. But more importantly, transportation and exchange rates are significantly lower now than then.'
Exports have become a major source of U.S. corn, soybean and wheat demand from the United States this year.
Kliethermes said that during the global economic expansion and commodity increase of 2008, ocean freight demand was soaring, which led to significant transportation costs, while demand was centered on raw material and food grade commodities due to growing Asian demand.
'High freight prices, coupled with a shortage of vessels, spurred new investment to expand the current fleet of oceangoing vessels,' he said. 'Shortly thereafter, economic conditions slowed or tumbled, depending on the country in question, which in turn dampened demand for raw materials. Due to those series of events, today’s fleet of oceangoing vessels has surplus supply.'
Kliethermes said export commodities are still priced attractively to foreign markets.
'Today’s high commodity prices clearly represent an increase to pre-2008 levels, but still remain at a 'bargain' relative to 2008 prices,' he said. 'This condition will allow for continued U.S. demand for corn and soybeans in the short term. Current vessel supply is underutilized, as major economies are slow to regain earlier growth trends in GDP.'
He added that demand from emerging Asian economies, notably China, is implementing policies to slow growth in hopes of curbing any future market meltdown. As such, ocean rates may stay in this relative range for the time being, but will strengthen again as economies begin to expand and demand more resources. ' Eric Johnson
Economist: Ocean freight costs aid U.S. exports
