Turbulent Waters

Scrap recyclers may have to navigate turbulent waters when shipping ferrous and nonferrous scrap overseas.

Scrap metal has never been a favorite of containership lines in light of its heavy weight and the damage it can inflict on containers. With the current economic downturn, scrap metal may be considered even more of an unwelcome guest on many containership lines. Rather than tipping the scales in favor of scrap metal shipments, the current economy has containership lines taking steps that can adversely affect the movement of scrap metal from the U.S. to overseas destinations.

Bulk shipments of scrap metals have not been untouched by the declining economy either. China’s consumption levels help to drive bulk shipping, and tempered buying on the part of Chinese consumers of ferrous and nonferrous scrap means that bulk rates have declined somewhat. However, one industry analyst cautions that an increase in buying from Chinese consumers could result in a rate spike.

"Everything with bulk shipping is driven by ‘the China factor,’" says Barry Parker of BDP1 Consulting Ltd., Long Island, N.Y. "There is little transparency about what’s going on over there with the Chinese steel industry, but like other commodities, there seemed to be some stabilization during February and March 2009. But, clearly, China should be watched; they may come into the market and cause a spike." He adds, "I say ‘spike’ because a big ship chartering push may drive shipping rates up temporarily—ultimately there is a great deal of oversupply."

With scrap making up roughly 3 percent of the tonnage shipped in bulk via ship, scrap shippers are "price takers" when it comes to freight rates, he adds, giving shippers little negotiating room when it comes to rates.

While scrap shippers may be at the mercy of the market, particularly for bulk shipments, shippers of ferrous scrap likely have noticed that prices have declined compared to mid-2008. "Bulk shipping is in synch with scrap prices, so high industrial demand, which leads to high scrap prices, has a strong correlation with the overall levels of bulk shipping rates," Parker says.

"Bulk cargo rates have come down quite a bit," says Ram Guru, president of Milestone Metals Inc., Fairfax, Va., a metals trading company. He says bulk rates are currently averaging $30 per ton for ferrous scrap.

According to Parker, recyclers may see lower rates for bulk shipments of scrap metal later this year. "A composite of time charter rates (the price to rent a scrap-suitable vessel in the marketplace, which in turn will influence the cost per ton that a shipper would pay to move material) within the Baltic Supramax Index is presently priced around $13,600 per day," he says. "The forward prices are actually lower—around $11,800 per day based on trading through the Imarex platform." (Imarex is a sea freight derivatives exchange based in Norway.)

Bulk shipping rates are less per ton than containerized shipments, which are averaging $40 to $50 per ton to China and Taiwan, Guru says. "Last year, the bulk rates were higher than container rates, but only for a short period of time," he adds.

The cost to ship containerized ferrous and nonferrous scrap via seaborne vessels has decreased compared to this time last year, however, container availability mirrors recyclers’ experiences from spring of 2008. Recyclers also report that some shipping lines have suspended service at some ports.

The decrease in manufacturing and consumer purchasing means fewer containers of finished goods are being shipped to U.S. ports, resulting in fewer containers available for export shipments of raw materials from the U.S.

"There are not a lot of surplus containers with imports being down," says Scott Krohn, director of transpacific trade for OOCL (Orient Overseas Container Line), based out of the company’s Rosemont, Ill., office. "Equipment availability drives rates as well," he adds, as do port rotations, ship size and fuel costs.

Guru says Milestone Metals is moving nearly 100 containers of scrap metal per week, but he adds that the company is facing problems related to logistics issues. The lead time for containers increased in April, he says, with two to three weeks being common on the West Coast and one to two weeks common on the East Coast.

He notes that some container lines have suspended services at some ports, which means Milestone Metals has to have material trucked to a nearby port for shipment, which can add $35 per ton to the cost of the material—costs that were not originally figured into the order based on the situation at the time the order was taken.

"We have 30 days to fill an order," he says. "If the shipping rate goes up two weeks into it, it cuts into your profits."

Container lines also have begun using their smaller vessels in light of reduced global trade; therefore, the ships are filling up faster. Scrap shipments are likely to be bumped in such cases to meet weight restrictions. "Scrap metal is their last priority," Guru says of container shipping lines. "It adds a lot of weight compared to other goods."

Scrap metal also is known for being hard on intermodal containers, which is why OOCL has developed some guidelines designed to minimize damage to containers. Krohn says shipments of scrap metal must be palletized, shredded to a size of 6 or 8 inches or bound for shipment with OOCL.

Krohn also suggests that shippers keep within the specified weight restrictions for container shipments of scrap metals. "They can avoid excess charges once the shipment hits the consignee by making sure the scrap is prepared properly," he adds.

While Chinese consumers are buying roughly half of the volume of scrap metal they were buying this time last year from U.S. vendors, generation in the U.S. has decreased by a greater percentage, Guru says. Demand also remains steady from India, Singapore and Taiwan, he says.

"I think demand from China for nonferrous scrap will continue, but the price will be volatile," he says. "The same thing with ferrous scrap; prices will be very volatile. I have no doubt that there will be container [availability] problems."