Rising freight rates make some grain transportation economically unprofitable

The increase in the cost of logistics does not increase exporters’ income, since the pressure of freight rates is actually transferred to FOB and domestic prices in Ukraine.

Over the past week, freight rates on certain routes have increased significantly. This was reported by Barva Invest’s operating partner Bohdan Kostetsky.

Thus, the cost of transporting goods to the Sea of ​​Marmara has increased from approximately $23/t to $26/t, and delivery to the Turkish port of Mersin has increased to about $29/t.

The largest increase was recorded in the “burner” segment. If a week ago, the transportation of meal to the Georgian port of Poti cost $35–36/t, now the rates have risen to approximately $50/t, that is, by almost $15/t per week.

According to Kostetsky, under such conditions, the burner market actually becomes economically uninteresting, and some transportation ceases to count, which may limit access to certain sales markets.

At the same time, the increase in logistics costs does not bring additional profit to producers and traders.

“The consequences of more expensive freight are actually paid by the importer, but this does not provide a significant increase for exporting producers. As long as buyers are not willing to pay more than the expensive freight forces them to, all the negative effects of the increase in logistics costs fall on FOB and domestic prices in Ukraine,” explained Kostetsky.

Currently, the domestic price of corn in Ukraine is formed at approximately $214/t. According to the expert, buying grain more expensively from producers does not yet make economic sense, especially given the risk of further growth in freight rates.

Because of this, the market has actually gone into standby mode. Farmers are in no hurry to sell grain, and international traders are taking a wait-and-see approach, assessing further market dynamics.

At the same time, support from world stock market quotes and relative price stability on a CIF basis may in the future be partially transferred to FOB, but the key factor for the market at present remains the further dynamics of freight rates.

Also, as USM wrote the day before, Ukraine provided about 92% of sunflower oil imports to the EU.