Competitive advantage in trade with Asia

WESTERN Australia’s proximity to Asian markets ensures the State will remain at a competitive advantage over other iron ore producing regions, despite recent unprecedented increases in freight costs.

Another advantage is that ports in the State’s North-West have not experienced the long delays for ships onloading their cargo that have beset many of world’s dry bulk cargo ports, as companies rush to fill the Chinese demand for commodities such as iron ore and coking coal.

Tony Pegum, managing director of Seawise Australia – one of the nation’s largest ship chartering and broking firms – said there were delays of around two weeks at some ports in China and in the eastern States of Australia.

Port Hedland Port Authority CEO Ian Huntley said that, while the port was shipping a lot more iron ore, the queues of ships in anchorage “are no longer or shorter than before the big rush in iron ore.”

Many of the State’s ports are undergoing expansions to cope with increase trade.

BHP Billiton will open a fourth berth at the Port Hedland Port Authority later this month as part of its $1 million iron ore expansion to meet growing Chinese demand.

Mr Huntley also said the port would be procuring two additional tugs in the first half of this calendar year to cope with the increased number of ships.

It is a similar story at Dampier Port Authority, where Hamersley Iron is increasing port facilities.

Major shippers have indicated that the strong demand for vessel chartering will continue to place upwards pricing pressure on freight costs, already reaching unprecedented levels towards the end of last year.

Further, increased freight costs have not blunted demand, with upward movement in some commodity prices, such as the 18.62 per cent price increased secured by Rio Tinto and BHP Billiton for its lump iron ore sales to Nippon Steel, absorbing the increases.

Larger producers such as Rio Tinto and BHP Billiton are also likely to have long-term contracts in place that shield them from fluctuations and increases in costs such as freight, according to industry analysts.

Freight costs for bulk dry cargo vessels increased four-fold last calendar year. Costs for the chartering of container ships and tankers also rose, although the increases were not as severe as the costs of chartering a bulk dry cargo vessel.