Tag Archives: bulk commodities

So what’s it got to do with farming?

On the 23 March 2021, the Ever Given, one of the largest container ships in the world, got stuck in the Suez Canal. It took six days to refloat it. This made the media everywhere. What wasn’t reported in quite as many newspapers was that the ship was then impounded by the Egyptian government on 13 April 2021. This is because the company refused to pay a reported $916 million in fees demanded by the government. This compensation is claimed to have included $300 million in “loss of reputation.” Personally I suspect that at that point the temptation of the owners would be to walk away, telling the Egyptians to just keep the boat. But apparently the Egyptians reduced their claim to $600. Finally, in early July 2021 the ship was allowed to sale, an agreement having been reached.

Obviously it caused chaos, there was a traffic jam of over two hundred vessels, and some boats decided to come home the long way, taking the 15,000 mile detour round the Cape, rather than wait until the canal was unblocked. Apparently “Suez to Amsterdam at 12 knots is just over 13 days via the canal, or 41 days via the Cape.” Not only have you the costs of the extra time, you’ve got extra fuel, and also the worry about how your customers will react to the fact that the stuff you’ve promised to deliver is still at sea.

But there was an interesting article in the paper this morning. The Ever Given has docked in Felixstowe, about four months late. Initially it had 18,300 containers on it, many were offloaded in Rotterdam, but two thousand will be unloaded in Felixstowe. The cargo includes two giant dinosaurs for a Cambridgeshire golf centre, and an awful lot of fruit and vegetables that have gone rotten.  

One problem is that shipping is cyclical, there’s a shortage. So people build more ships and scrap fewer, and then suddenly, ten or so years later, there’s a surplus.

And at the moment, we’re in shortage. There’s a demand for scrap, so you can cash your ship in for $500 a ton (a high price when banks were recommending people budget of $50.) Covid played a part, replacement crews were in the wrong place. Companies had to charter planes to fly them out and fly the others back, but the replacement crew might still have to quarantine for a fortnight. Schedules weren’t as much pushed back as scrapped.

But spot container rates for goods leaving Asia (which is the big exporter) rarely ran more than $2000 for a standard 40ft container. This jumped during the course of this year to $7000 and last week prices for the China to USA route broke the $20,000 barrier. Some of this is prices getting back to where they should be. At the start of 2020 it was notoriously cheaper in some places to stick the cargo on a freighter and send it round the world than it was to pay for warehousing.

So what does it mean for farming? Well we’re lucky in that most of the stuff we purchase, feedstuffs and fertiliser, come into the UK as bulk cargos. These haven’t seen the same cost hike as containers. But there again, some major shipping lines are now convincing their clients to abandon containers and just to ship things in bulk for the saving. So we’ll probably see prices rise. But for once there are advantages to being part of the obsolete and unfashionable end of the market.

But then there’s our competitors. It’s highly likely that some of the gaps in supermarket shelves are due to produce rotting on ships that were delayed, one way or another. Also a forty foot container can carry about 22 tons of fruit. The increase in cost from $2000 to $7000 would mean an increase of $250 per ton or about 18p per kilo. I cannot see the supermarkets deciding to just absorb that cost.

The exporters who’ll suffer most are those who sell cheap, bulk, commodities, such as food. A lot of African exporters are being badly hit, first by the lack of flights that would provide hold space for some cargo, but also by the fact that pretty much any cargo you want to ship is probably worth more per ton than food means that they’re going to be at the back of the queue when it comes to hiring shipping.

It’s going to be interesting to see what does either disappear from the shops and shoots up in price.

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