Freight costs to cut US wheat exports by half

Related tags Wheat Southeast asia

The US could see its share of the wheat market in Indonesia,
southeast Asia's biggest buyer, cut by half this year as a result
of surging freight tariffs. Rocketing prices are transforming
global food export markets as importers look for the cheapest
option.

And wheat exporters from the US look set to be among the biggest losers. "Our sales are almost down by half in Indonesia,"​ Mark Samson, vice-president for South Asia of the US Wheat Associates, told Reuters​. "And the biggest problem is the high cost of shipping. Most of that share is going to Australia."

US market share in Indonesia - which annually imports around four million tonnes of wheat - could fall to less than 150,000 tonnes from last year's 300,000 tonnes. Significantly, the landed cost of some grades of Australian wheat is working out close to $200 a tonne, compared with around $220 a tonne for US wheat.

According to the US Department of Agriculture, rates from US to Asian ports rose by 12 per cent for refrigerated shipments and 11 per cent for dry shipments for the first nine months of last year.

The bad news for US exporters is that rates are expected to climb further, driven by surging Chinese demand for raw materials. In addition, shipping lines in the US are having to implement expensive federal security regulations aimed at thwarting terrorism.

A report on the container ship market by analyst Howe Robinson suggests that this is creating a 'tonnage squeeze,' with ships available for charter certain to be in short supply in 2004. Some US container lines could be forced to cut non-core services if they become unprofitable.

In addition to high freight, a decline in wheat from India, China, Ukraine and Kazakhstan - which supplied a lot of the grain to Indonesia last year - has also benefited Australian exporters.

All this represents a reversal of fortunes for Australia, the world's second-largest wheat exporter. The country's share of the Indonesian market fell to 50 per cent last year from more than 70 per cent due to competition from non-traditional suppliers. But this year, Australian producers say they are heading for a bumper crop. Last month, leading wheat company AWB raised Australia's wheat crop expectations by announcing forecasts of a record 25 million tonnes, upping previous estimates by around 10 per cent. Across Asia, Australian wheat companies are reporting strong trade, and in many other markets, such as Malaysia and Thailand, suppliers are struggling to meet demands.

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