Aussie ag trade risks come from near and far

Trade logistics are set to become increasingly challenging for Australia’s agricultural sector with the escalating tensions in the Red Sea disrupting global trade, according to agribusiness banking specialist Rabobank.

Meanwhile, the industry is also facing home-grown challenges, thanks to industrial action at Australia’s ports.

RaboResearch General Manager Stefan Vogel said as ocean shipping companies divert more vessels away from the Suez Canal to avoid attacks by Houthi militants and the escalating military action against them in the Red Sea, Australian canola exports may be particularly impacted as the bulk of these are destined for the European Union (EU) and normally shipped through the canal.

Australia may also have to deal with some increased costs for imported goods – such as certain fertilisers, ag chemicals and machinery parts – as importers face higher freight costs, as a result of diverting around the canal and impacted areas.

However, the elevated freight costs are not expected to reach the Covid-related highs seen in 2021, Mr Vogel said.

“Globally, for containerised and bulk goods, the shipping industry has to make tough decisions at the moment – either to navigate the Suez Canal and risk severe attacks by Iran-backed Houthi rebels or to take a nine to 15-day detour around Africa’s Cape of Good Hope,” he said.

Mr Vogel said initial attacks by the Houthi on cargo ships had seen bulk freight rates spike in December, though these had now settled back closer to 2023 average prices.

For Australian canola exports, shipments to “our prime markets in Europe are likely to get more complicated and expensive”, he said, “as they do usually pass through the Suez Canal, while canola shipments to the EU from our competitors in Ukraine and Canada do not”.

Wheat and barley the winners

Conversely, Mr Vogel said “the canal issues might help Australian wheat and barley shipments to be slightly more competitive into destination markets in Asia, the Middle East and eastern Africa”.

“This is because our key competitors from Russia, Ukraine, the EU and even the east coast of the US will struggle to get to these destinations as they usually pass through the Suez Canal, while Australian grain does not,” he said.

Imports also at risk

The impact of the Suez/Red Sea crisis on agricultural fertiliser and other farm input imports is likely to be mixed, Mr Vogel said.

“Fertilisers used on farm in Australia are largely imported in bulk. And, at least for nitrogen and phosphate fertiliser supplies, they should not be impacted much as they mostly derive from Asia and the Middle East and don’t pass through the Suez Canal,” he said.

“Potash, however, largely comes to Australia from North America and Europe and some of those shipments could be impacted by the attacks and re-routing of vessels.”

Containerised shipments – both to and from Australia – will also be affected, Mr Vogel said.

“This is likely to have time and cost impacts on plant protection chemicals and machinery parts coming into Australia as well as Australian meat and fresh produce exports,” he said.

Lessons learnt during pandemic

“During the 2021 freight crisis, Australia struggled to find sufficient containers for exports as shipping companies gave preference to their major global routes and somewhat neglected Oceania or they tried to quickly take empty containers back from Australia to China rather than adding in shipping time to export Australian goods.

A similar struggle for containers is not unlikely to materialise again if the Red Sea struggles tighten global container freight capacity further.”

The FBX global ocean freight container index has more than doubled from early December to mid-January to reach the highest price level seen since October 2022, Rabobank said.

“The good news is container freight rates at the moment are still three to four times below the massively Covid-inflated levels of 2021,” Mr Vogel said.

“Imported goods into Australia will have to bear the higher freight costs, but container freight is unlikely to get as expensive as in 2021.”

RaboResearch Global Economic Strategist Michael Every said while “things aren’t as bad as the last shipping crisis, they could still get painful if the Suez/Red Sea crisis is not resolved soon”.

Total container transits and tonnage via the Suez Canal have now slumped to Covid-era lows, he said.

“Helpfully, ocean carriers have added 11% container ship dead weight tonnage capacity since Covid,” Mr Every said.

More broadly though, he said, the current “Red Sea/Suez crisis, on top of the ongoing Black Sea/Ukraine crisis and the risk of others to follow, provides a fat tail risk of potential fresh waves of inflationary supply shocks for western economies and financial markets, which are currently predicting nothing but easing price pressures and large rate cuts in 2024”.

Problems at home

Trade logistics are also proving to be a problem on Australian shores, as the escalating dispute between DP World and the Maritime Union of Australia (MUA) continues.

The Australian Meat Industry Council (AMIC) is calling for action to address the ongoing industrial action that has seen significant disruptions across Australia’s sea freight terminals.

AMIC Chief Executive Officer Patrick Hutchinson said that Australia exported $15 billion of beef, lamb and goatmeat to more than 100 markets in FY23, adding that “If DP World and the MUA cannot come to a resolution, we urge the Federal Government to step in as this needs to be resolved as soon as possible to prevent further damage to not only the red meat industry, but the entire Australian economy”.

“Cross-border trade underpins the employment of hundreds of thousands of people across the red meat supply chain and provides the economic lifeblood of Australia’s rural farming communities,” he said.

“This ongoing and escalating dispute is severely impacting the entire red meat supply chain and ultimately risking meat industry jobs, and Australia’s international reputation.”

A recent AMIC member survey on the impacts of the ongoing industrial action at DP World terminals has outlined that Australian meat exporters are feeling the impacts of this issue strongly within their businesses.

The survey revealed that exporters are facing the following impacts such as needing to consistently remove containers from terminals due to over month-long delays at ports, resulting in shelf-life expirations for chilled meat consignments.

Meat processing and exporting businesses are experiencing excess inventory due to being unable to load out product caused by vessel omissions and delays as a result of the industrial action and there has been a significant increase and additional costs to export associated with the disruptions and logistics.

A lack of availability of imported inputs are also putting operations at breaking point, leading to potential manufacturing shut downs.

“This dispute has severely disrupted the ability to trade perishable goods, particularly meat,” Mr Hutchinson said.

“The inability to get containers moving through ports and the lack of access to shipping slots has hamstrung Australian meat exporters and added unnecessary costs.

“This situation is creating disruption up and down the supply chain and compounding other stresses to global shipping, such as the Red Sea shipping crisis, ultimately resulting in significant impacts to the trade operations of Australian meat and smallgoods processors.