The cost of shipping commodities like grains, metals and coal has fallen as soaring energy prices in Europe throttle global economic growth.

Manufacturers of products such as fertilizer, aluminum and vegetable oils are curtailing production in Europe as the energy crunch makes operating plants too expensive. That’s reduced the need for ships to transport so-called dry bulk freight, according to Cargill Inc., the world’s biggest agriculture trader, pulling down rates from their pandemic high.

“If you look at the margin in Europe with the current energy prices, you might be better off actually taking in finished products from somewhere else,” Jan Dieleman, head of Cargill’s ocean transportation business, said in an interview in New York. “If you look at these energy prices today, are you better off crushing in Europe or importing the meal from Brazil?”

European aluminum output has fallen to the lowest level since 1973, with producers of metals like zinc and copper also slowing down due to the soaring power costs. Fertilizer producers including CF Industries Holdings Inc. and Yara International ASA have curtailed production, while oilseeds processing this year is at its lowest since 2019, according to data from industry group Fediol.

On top of the energy crisis in Europe, business in China is slower and demand is also under indirect pressure from shifts in consumer behavior. Demand for shipping had soared as the pandemic caused more people to stay at home and order more products, overwhelming the global freight industry. 

The Baltic Dry Index skyrocketed more than 1,300% from May 2020 to October 2021 as consumer products filled container ships that carried some commodities, pushing those goods onto bulk vessels. 

Since then, as Covid restrictions lifted in most parts of the world, spending is shifting to travel and other “experiences,” rather than goods, helping the index fall back by more than two-thirds from that lofty level. 

“The bonanza impact is a little bit gone there, what we see is a bit of normalizing of supply chains,” Dieleman said. “Just three, four weeks ago we were at an all-time record low of congestion in China, which is something that we hadn’t seen for a long time. If you add it all up, you have a bit of a perfect storm to the downside.”

Yet, the outlook remains constructive, according to Cargill. There is still a lot of uncertainty as to what will be the fuel of the future as the shipping industry seeks to decarbonize, and as a result, companies are refraining from ordering new ships, he said.

“After a big spike, you normally see massive ordering, and after this spike you haven’t really seen that.”