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Rising Freight Costs Add To Food Buyers' Woes Amid High Grain Prices

By Dayeeta Das
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Rising Freight Costs Add To Food Buyers' Woes Amid High Grain Prices

Rising costs to ship crops globally are adding to concerns about food inflation that are already at decade-highs and hitting cost-sensitive consumers in import-dependent markets.

The cost of bulk carriers that move grains and oilseeds from production hubs in the Americas and Black Sea to key consumers have roughly doubled from last year due to rising fuel costs, tighter vessel supply and longer port turnaround times amid COVID-19 curbs, according to grain and shipping sources.

"Freight cost has become a real challenge as it comes when we see huge increases in grain prices," said Phin Ziebell, agribusiness economist at National Australia Bank in Melbourne.

"For years, buyers enjoyed low grain and freight prices. I see no immediate end to high freight costs."

The cost of moving grains from Australia to Southeast Asia has risen to $30 a tonne from $15 last year, and to $55 from $25 from the US Pacific Northwest to Asia, shipping sources said.


Ships carrying wheat from the Black Sea to Asia now cost around $65 a tonne, from around $35 last year.

"It is the cost of bunker fuel and the cost of bulk ships lifting the prices of carrying grains," said one trader at a leading brokerage in Singapore. "We also have COVID-19 quarantine requirements slowing cargo movement."

Fuel To The Fire

With world food prices having risen at their fastest pace in over a decade in May, the spike in crop freight costs poses a fresh challenge to food importers and policymakers attempting to keep inflation levels in check just as several key economies reopen following coronavirus lockdowns.

And the price of key crops like corn and soybeans are set to remain elevated and volatile through the rest of the northern hemisphere growing season as crops develop.


Chicago corn futures are up roughly 90% from a year ago on strong global demand and stressed crops in the United States, while soybeans are up more than 50% after drought clipped output in top grower Brazil. Wheat is up around 30% from a year ago following growing problems last season.

Read More: Today's Global Economy Runs On Shipping Containers, As The Ever Given Fiasco Illustrates

Double Whammy For Buyers

The double whammy of higher crop and freight prices is pinching buyers in Asia, the top crop consuming region and home to China that accounts for more than half of the world's soybean purchases. Japan is one of the world's biggest corn buyers.

For a typical wheat buyer in Indonesia, the world's second-largest wheat importer, the cost of a 50,000-tonne cargo of food-grade wheat from the Black Sea has jumped by $4 million from a year ago to around $15 million, with the freight cost alone rising by $1.5 million.


Crop price volatility is another challenge.

Benchmark corn futures lurched more than 10% higher in the last week of June before slumping 10% the following week as weather forecasts shifted market sentiment.

"We have seen a drop in consumption with these high prices," said a procurement manager at a flour milling company with operations across Southeast Asia. "It is difficult to take a position in a market like this. Millers are reducing purchases."

News by Reuters, edited by ESM. For more Supply Chain news, click here. Click subscribe to sign up to ESM: European Supermarket Magazine.

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