Shipping the World’s Coal

Shipping costs for coal are influenced by a number of factors, principally the distance between the importer and the exporter and competition for vessels to move other bulk cargos such as iron ore and grain.

The port infrastructure and water depth at each end also have an effect on what size of vessels can be used. In general, the larger the vessel is, the cheaper the freight rate. The vast majority of coal is sold at the exporter’s port, with the importer arranging the ocean freight.

Ocean going vessels move most of the coal that is traded globally. The cost of shipping accounts for about 30% on average of the delivered cost of coal. Internal transport by road, rail and barge from the mine to the export port can account for up to another 20% of costs, as delivered to the importer’s port. There is thus a large difference between the FOB (free on board) cost at port of departure and the CIF (cost, insurance, freight) at point of arrival.

The demand for Capesize vessels (+100,000 dwt) for the handling of iron ore and grain is high, so Cape rates are high for the handling of coal. The excess demand is creating a knock-on increased demand for Panamax vessels (about 65,000dwt) driving their rates up, and in turn creating more demand for even the smaller Handy size vessels (- 45,000dwt). Such demand pressures are cyclical and are impacted by vessel scrapping and new vessel buildings. Rates are also impacted by the location of demand, although the major coal demand has gradually swung from the Atlantic Ocean to the Pacific Ocean over the last decade. Demand location for iron ore is similar to coal but is different from grain demand location. These shipping factors for coal transportation are not expected to change significantly in the foreseeable future and ocean freight rates will continue to be volatile and cyclical.

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