Barge demand gets a boost from Asia

Bulk commodity markets are customarily defined by availability and cost. Usually, availability is assumed and cost is what determines whether U.S. coal and grain is competitive on the world market. There is no rocket science involved here. It’s simply geography and distance, which determines freight rates and the final delivered cost to the buyer.

However, the equation can change dramatically when product availability is suddenly disrupted. That’s when geography and distance become variables in a new equation to determine total delivered cost. Two current examples are U.S. metallurgical coal and wheat.

Australia is the main bulk market source for Asia for metallurgical coal used primarily for steel production. The U.S. has been unable to crack this market mostly due to transportation distances and costs. However, the recent flooding in Australia has severely disrupted domestic coal production and shipments to the point that Asian buyers are now purchasing U.S. Appalachian coal. This is big news for railroads and barge lines. A substantial volume of coal — six million tons or more — is expected to be exported to Asian buyers. Suddenly, U.S. metallurgical coal producers find themselves in a sellers market.

A similar situation is emerging for U.S. wheat exports. The U.S. remains the world’s top wheat exporter, both in quality and quantity. Severe weather and rain has damaged wheat crops in Canada and Australia and the Soviet wheat crop was nearly ruined by drought and has been reportedly embargoed for export sales. Food shortages and rising prices for overseas grain has attracted foreign buyers to the U.S. and, as a result, wheat prices and exports from the U.S. soared in January.

Since coal and wheat are two big cargoes for the barge industry’s hopper fleet, dry-cargo barge operators may now realize a nice increase in business in 2011. Eventually, however, the flooding in Australia will subside and the mines will reopen, lessening or eliminating demand for U.S. Appalachian coal in the Asian market. Similarly, future wheat production and harvests will replace damaged crops abroad.

For now, however, the surge in demand and increased exports of domestic coal and wheat is good news for the barge industry and other transportation providers.

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Workboat Staff

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