US perspective — 21.03.08
25/03/2008
The Jacobsen Commentary and Market Opinion—21.03.08
Courtesy of www.thejacobsen.com
According to the various sources we spoke to, last week does not appear to have been a busy week for trading. However, the most recent USDA export sales report has shocked the trade with reports that 741,400 wet-salted hides traded last week.
Checking around the trade, the general consensus is that a large part of this number is being attributed to being sold late the week before, as most point out that last week’s report came in lower than where most had suspected.
Taking this argument at face value, regardless of whether the hides were sold the week ending March 6 or March 13, the combined sales (wet-blue and wet-salted) of the two weeks equals 1.7 million hides.
What we find very interesting about the above is if we are to take these figures at face value, we are intrigued that packers were still willing to offer hides this week (in packers’ defence offers were not as plentiful this week); however, given the fact that all of the packers will have representatives traveling during the course of the next couple of weeks converging on the APLF exhibition in Hong Kong, we wonder out loud why they would even offer, even more so considering that the majority were offering hides this week at their last asking levels.
As far as trading levels this past week on big packer hides in the US, HNS are trading in a range of $65.50-$66, while HTS after exchanging hands at levels of $64.50-$66 last week, are seeing packers refuse bids at $65 this week. Meanwhile, interest on BS at levels of $64 and lower are also being refused this week, while we are hearing that it will take at least $65 to buy BBS and $63 to buy CBS this week.
As it pertains to cow hides, we have seen some slightly better trading levels during the past week, with HNDC reaching levels as high as $57, HNC as high as $54 and HBC at levels of $45. In the meantime, interest on bulls is reported as strong and this has allowed producers to achieve levels as high as $62 on natives and $57 on brands, while interest in small packers’ hides is decent as well, with levels as high as $49, while kips have brought levels as high as $47.
Meanwhile, at the US Hide Skin and Leather Association Board annual meeting in Washington D.C. last week, we saw that one of the biggest topics of discussion was the situation with export containers. There is a lack of containers and a lack of space on vessels. Something that is going to be clearly evident as a result is the increasing cost of transportation. According to some of the people in attendance, the word at the meeting was that current ocean freight quotes are anywhere from $1,000 to $1,500 higher than a year ago, and these rates do not include fees for fuel or positioning fees.
In addition, shipping lines, railroads and trucking companies are adding a fuel surcharge, which is reported to be as much as $750 per container, in addition to the freight rate. What is really interesting, in addition to all of these fees, is that there is a new charge being added to move containers to where they need to be. With the rising cost of oil, there is no doubt that additional increases in fuel surcharges are inevitable.
What is problematic for companies in need of container space is that roughly 70% of the containers that come into the US are unloaded within 250 miles of the ports. This is attributed to the fact that shipping companies prefer to keep empty containers at or near the ports because demand for containers from Asia is tremendous, so strong in fact that often shipping companies will carry back empty containers to meet the demand as quickly as possible.
Shipping lines have little interest in attempting to manoeuvre containers back to the middle of the US—where 85% of the hides are produced—by railroad as this is cost-prohibitive.
This situation is wreaking havoc throughout the entire hide industry in the US and the larger the player, the larger the problem as we continue to hear from multiple sources stories of shipments that will be either missed or severely delayed, which in turn will adversely affect tanners who are counting on these shipment.
In the meantime, an even more serious problem is the absolute lack of vessel space on outgoing ships; many shipping lines are advising clients they have no more space for new bookings until middle of May or later and this is leading to thoughts that Asian tanners might be fortunate if they receive 80% of hides on time over the course of the next 24 months. This is leading to speculation that the cost to export a container will more than likely double (to between $2 and $3 per hide) versus a year ago.
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