Rising sea freight costs and buyer service fees eat into woolgrower margins

Growers urged to check post-farmgate charges

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COMING AT A COST: Fees charged after the woolclip has left the farm can significantly cut into grower returns.

COMING AT A COST: Fees charged after the woolclip has left the farm can significantly cut into grower returns.

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Broker advises woolgrowers to carefully analyse their selling costs.

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Costs that are incurred along the wool supply chain are recovered from the exporter's selling price to derive the limit used in the auction room.

The two most significant costs are the post-sale service charge (PSC) and sea freight.

There has recently been much talk in the broader media about international sea freight disruptions, and the wool industry has not been exempt from these.

Initial disruption from COVID-19 issues last year resulted in slower transit times due to ports randomly closing around the world as outbreaks occurred.

This led to major port congestion in the transit shipping hubs of Singapore and Port Keelung, in Taiwan.

About 25 per cent of the world's traded goods pass through Singapore each year alone - including Australian wool destined for Europe and India.

The majority of wool for China ships direct, or near direct, to Chinese ports.

Adding to last year's congestion problems was the diversion of vessels to satisfy the China-USA route, for which demand and the opportunity for higher profitability for the shipping lines have soared.

An unfortunate consequence of these factors is that sea freight for these destinations has doubled in recent months.

For example, the cost of shipping to Italy has risen from US$2500 to US$5500 per 20-foot container.

As recently as last week, one major shipping company informed wool export clients - and other export industries - that their bookings for the remainder of 2021 would be cancelled and there was no available space until 2022. This was all due to the Singapore congestion.

The shipping pressure might ease in mid-2022, but that is really anyone's guess for now.

Sea freight costs as a percentage on China-bound wool make up only about 8-9pc of total costs, but the PSC incurs as much as 50pc.

The PSC is a flat rate charge to the buyer or exporter from the selling broker.

This charge was traditionally in place to cover services provided to the buyer at the wool stores and covered amenities such as landline phones on the show floor, catering for breakfast and lunch and fax services etc.

This is outdated today due to technology advances.

The only major service provided in the PSC now is the buyer getting the wool on a truck and delivered to the wool dump.

Comprising about 50pc of the cost of delivering a bale of wool to China, the PSC is recovered from the limit the buyer uses in the auction room.

That is, it is directly deducted from the price the grower receives.

The PSC increased by between 3 and 6pc this season, and varies significantly from broker to broker.

At an average of about $42 per bale, it is a significant cost and worth woolgrowers asking how much it was adding to their overall selling charges when considering business costs.

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