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Ocean freight cost index breaks another floor

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CNS Canada — The Baltic Dry Index (BDI) continues its downward slide, dropping below 400 points for the first time ever as ocean freight rates struggle to find their bottom.

The BDI was quoted at 394 points on Wednesday, marking a new low since records began in 1985. The index was trading above 1,200 as recently as the beginning of August 2015, but has struggled over the past five months.

The BDI, compiled daily by the London-based Baltic Exchange, provides an assessment of the price of moving major raw materials, including grain, by sea.

An overcapacity of ships, the slowdown in Chinese demand for building materials, weakness in crude oil and declining commodity prices have all been cited as contributing factors to the lower freight rates, according to freight analysts.

As far as Canadian grain and oilseed exports are concerned, the lower freight rates even the playing field in some cases by lessening the importance of shipping costs in the final price to the buyer.

As an example: while Australia will always be closer to China than Vancouver, lower freight rates lessen the importance of shipping costs in the final price.

The lower freight rates “are enhancing the demand for grains and oilseeds in Canada,” said Jerry Klassen, manager of the Canadian office for Swiss-based GAP S.A. Grains and Products.

“We have very competitive rates off the West Coast to all major destinations, especially on wheat.”

Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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