What do global shipping disruptions mean for Aussie dairy?

Source: Drewry World Container Index, Drewry Supply Chain Advisers. Photo by Isabel Dando

The global trade environment continues to throw curve balls, and both importers and exporters are facing disruptions on multiple fronts.

While container prices surged in immediate response to the Red Sea attacks and drought in Panama Canal, looking into trade flows paints a more detailed picture of how these challenges will boil down to impact Australian dairy.

The Panama Canal is the major trade route that connects the Atlantic and Pacific oceans, and therefore is an important route for container freight moving between Asia and the United States and Europe.

Extreme drought conditions hit the canal in the second half of 2023, and with a reliance on freshwater lake levels to moderate levels in the locks, this has reduced the overall capacity of the canal, resulting in restrictions on the number of ships passing through on any given day.

This has resulted in prolonged wait times for some vessels, and adjusted fees for others, with the canal accounting for around five per cent of global container trade.

This situation is expected to gradually normalise, however, because this is not occurring in isolation, the path to normalisation may be a longer and more costly venture.

Tension has been escalating in the Red Sea, with attacks from Yemen’s Houthi’s greatly compromising vessel safety through the Suez Canal.

The Suez Canal accounts for around 12 per cent of global trade, and roughly 30 per cent of global container movement, with the passage substantially reducing transit time between Europe and Asia.

As such, the reality of an additional 10 days navigating around South Africa, saw the container price for the journey from Europe to China jump significantly.

According to Drewry’s World Container Index (WCI), in the three months to January 25, the cost per 40ft container jumped 396 per cent to US$4984.

While Oceania trade is not as directly affected by the reduced shipping capacity through both the Panama and Suez canals, there have been some challenges closer to home.

Months of industrial action at Australian ports (especially Melbourne) caused some disruption to the flow of trade, however, such action is due to come to a close upon the signing of a deal.

Nonetheless, the Australian dairy industry may continue to feel some impacts of the broader global challenges, through the increased cost and reduced availability of containers, and more indirectly through the rising cost of imports, such as fertiliser.

This is likely to be the case for Australian dairy farmers, due to our reliance on imported fertilisers.

The Middle East is a large supplier of phosphates, and with restricted exports from China, this represents vital supply within the global marketplace.

So far, there has been minimal movement in global indicative fertiliser prices, with diammonium phosphate (DAP) rising six per cent over January, while urea and muriate of potash (MOP) values fell slightly, down five per cent.

However, with fertiliser prices heavily influenced by energy markets, increasing crude oil prices are signalling a tightening of the market.

On the other side of the coin, the increased cost of moving product between the US and Europe into Asia, has meant that there has been an increase in demand for Australian dairy products out of the Middle East and parts of Asia.

With our geographical proximity an already advantageous feature of our trading relationships across South-East Asia, this dynamic could further aid in the attractiveness of our exports, depending on how freight rates move in the coming months.

There are an array of challenges and disruptions putting supply chains at risk across the world, however, increased demand for our exported product and an alleviation of our domestic shipping constraints will prove supportive forces.

– Isabel Dando is a Dairy Australia insights and analysis adviser.