Freight Rates Rewrite Shipping Rule Book

Shipping costs have plunged to 22-year lows, skewing global grain trading patterns to the point where U.S. hog farmers are importing wheat from Britain and Japan has eschewed U.S. corn supplies to buy from the distant Ukraine.

In some countries, it is now cheaper to ship grain thousands of miles across the ocean rather than move supplies hundreds of miles by barge or railroad cars.

"Ocean shipping costs are so low that it would be cheaper for south Indian buyers to import Russian wheat than move wheat from north India by train," one European trader said.

Collapsing ocean shipping costs have leveled the playing field for wheat exporters -- who now compete solely on the price of the grain.

Russia and Ukraine have been able to make sales far beyond their traditional markets in Europe and the Middle East, reaching out to Asia, European traders said.

In a recent and closely followed international tender for wheat shipped to Egypt, U.S. wheat freight was $11 per tonne, an insignificant difference from Russian freight at $12. French and German wheat were also offered at $11-$12 per tonne to Egypt.

"Ship owners are giving away bulk carriers at operating costs just to generate cash flow and to pay crews' wages," another European trader said. "This will expand the selling range of U.S., Argentine and Australian wheat in the Middle East market if they can compete against the Russians on (free-on-board) prices."

And while the export season in the Black Sea region is quickly closing, dirt cheap freight rates will allow countries such as Argentina and Australia to be more competitive going forward.

"It is happening all because of the freight rates and I think it will go on for a longer period as the freight market doesn't show any signs of improving," said Vijay Iyengar, managing director of the Singapore-based grains trader Agrocorp International Pte Ltd.

Argentine wheat could makes sales to Morocco and Algeria, which typically buy wheat from nearby France.

"Argentine wheat -- whose quality is slightly better than French -- could very well make it on our traditional markets," said a European trader. "We could see switches on existing deals from European wheat to Argentine wheat.