Australia Freight Transport Report Q2 2008

2008 should be a good year for Australian shipping. The country's trade, and particularly its raw material exports, will continue to perform. In December ABARE (the Australian Bureau of Agricultural and Resource Economics) said it expected international iron ore prices to surge throughout the year. A range of analysts were predicting price increases in the 30-50% range in the year commencing April 1 2008, after an expected rise of 9.5% in the year starting April 2007. ABARE noted that the spot price of Indian iron ore imported to China, including cost insurance and freight, stood at US$180 per tonne, up from US$80 previously. Australian ore delivered in China on the same CIF basis was around US$100/tonne cheaper. A shortage of freight capacity had led to higher transport costs. From January to August 2007 spot freight rates between Australia and China had risen by 48%, or US$8 dollars a tonne. Weekly coal exports through Newcastle port rose consistently through most of Q407. In the week ending December 24 (effectively the last full working week of the year) the world's largest coal export terminal shipped 2.037mn tonnes, an increase of 13% on the preceding week, and the highest level achieved since the beginning of August 2007. The average waiting time for ships increased by 1.69 days to 15.3 days, while vessel queues fell by six to 47 ships waiting to be loaded, according to data from the Newcastle Port Corporation. While congestion remains a problem, BMI's Australia Freight Transport Q208 report predicts that shipping freight carriage will rise by an annual average of 5% per annum in 2008-2012.

According to our latest estimates, transport and communications GDP rose by 5.1% in 2007, on a par with GDP. For the 2008-2012 forecast period, we expect the transport and communications sector to continue outpacing the economy as a whole. It will achieve average annual growth of 3.8%, versus 3.6% for overall GDP. The total value of transport and communications GDP will rise to US$54bn in nominal terms by 2012, representing 5.7% of Australia's GDP.

In advanced economies, freight transport tends to grow at roughly the same pace as the economy as a whole. In Australia, however, we believe there is continuing upside potential in the freight sector, reflecting the size of the country's infrastructure development opportunities and the strong potential for continuing growth of mineral exports. Airfreight, as a result of renewed competition, will see 7.1% average annual growth in freight carried. We now expect rail freight to grow by 3.6% per annum, on the back of strong mining exports and infrastructure development. Road haulage freight carried will achieve average annual growth of 4.3%. We see this number reflecting very strong demand, which will, however, be constrained by capacity limits. Although new investment in road will be forthcoming, it will not do so fast enough to alter the picture radically before 2012.