The surge in world oil prices combined with a shortage of vessels will soon begin to have a serious effect on shipments from the Baltic states. Increased freight rates have started to impact dramatically on forward contracts, pushing costs upwards by approximately £4/m3. At present importers are mostly concerned with the enforcement of fuel bunker surcharges, but the real hammer blow is yet to come with the implementation of increased freight charges.

Agents are reporting delayed shipments because there is insufficient vessel space available to cope with volumes held at Riga, and other industries, prepared to pay better freight rates, are taking precedence.

According to a source from the shipping industry, demand for cargo space has intensified over the past three months, particularly from products such as metal, scrap and minerals. Sea freighters that come up for auction are being snapped up by operators from eastern Mediterranean countries such as Greece, Turkey and Syria. The accelerated growth of the Chinese economy is also placing demand on shipping.

As far as Baltic cargoes are concerned, an underlying problem has been caused over the past few years because two regular shipping lines have ceased to trade. This has reduced the number of ships by around 10, although the remaining operators have replaced some of the capacity by purchasing some of the vessels that came up for sale. The shortfall was made up by chartering vessels as required from independent ship owners on the open market, but with increased EU safety regulations, the majority of these independent owners have either ceased operating, or moved to bases at the Black Sea ports to avoid the cost of compliance.

Unseasoned timber

Baltic shipping lines have grown weary of carrying unseasoned timber which is shipped in stick because of the reduced volume in the packs. A shipping agent commented that there were significant differences between the sizes shown on the specification used to calculate freight costs, compared with the actual sizes to be loaded, which were frequently found to be larger. Another factor against wet timber is the uncertainty of weight (particularly through the winter months) which regularly causes parts of the cargo to be left at the quay side. These points have been overlooked in the past, but are now under much more scrutiny.

Swedish imports have not suffered the same fate as those from the Baltics; one terminal operator confirmed that all Scandinavian carcassing contracts have been arriving on schedule. A main concern was the weaker demand for dry-graded carcassing compared to the same time last year, and low selling prices. However, he also commented that the UK was still regarded by the mills as the best market in Europe.

In spite of the available log ratio of 40% redwood to 60% whitewood, UK buyers have a strong preference for whitewood only. This applies particularly to the larger importers whose stock turnaround tends to be slower, and they fiercely resist redwood carcassing because it discolours much more rapidly than spruce. However, most agree to settle for a mixture which will include around 10% pine, making it possible for the mills to produce the specification and keep costs lower.

Latvian log auctions

Latvian sawmills continue to grapple for decent logs at the right price, and whitewood is still at a premium. Prices at log auctions are running high, and the larger sawmills are accused of fuelling price increases by chasing everything that comes up for sale. One industry source commented that some hands remained permanently raised as the lots came up for sale, begging the question: are the volumes necessary for production, or is there a predatory pricing strategy being followed to run the smaller mills out of business?

Although the problems associated with shipping have slowed down softwood imports from the Baltics, there is still a relatively high volume of unsold carcassing stock within the UK. In order to try to maintain sales, many importers are battling against each other, using cheap prices with little regard for replacement costs.

Since August, sterling exchange rates have been on a downward trend against both the euro and Swedish krona and this, combined with rising freight costs, could force prices up further during the first quarter of the new year. With the winter holiday shutdown only a matter of weeks away, there is very little time left for importers to adjust their prices to reflect what lies just around the corner, something they may regret sooner rather than later.