In it for the long haul

by Michael King
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U.S. shippers have been exporting grain in containers since they became widely used in the ocean trades over 30 years ago. But it took powerful changes in shipping supply and demand to prompt widespread use.

In the 1980s and 1990s, according to figures supplied by Informa Economics, exports of grain and soybeans in containers were negligible, only passing the 100-box mark in four months spread across the two decades.

The first time the U.S. exported more than 1,000 containers of grain and soybeans in a month was December 2004. However, since then there has, quite literally, been a sea-change in the habits of exporters. Since the end of 2004, monthly box exports have only dipped below the 1,000 mark once, in July 2005. Indeed, in January 2008 the total soared past 30,000 containers and only dropped below 5,000 boxes per month once – in May 2010 – between February 2006 and September 2011.

The growing use of containers from late 2004 was prompted by a number of factors. Most important was the huge spike in bulk carrier freight rates from 2004 to 2008 (see BDI chart, page 34). Instead of containers being the preserve of specialty grains and identity preserved crop producers, the surging price of shipping in bulk, at a time when container rates were relatively steady, prompted more and more exporters to switch at least some cargoes to boxes, despite the higher additional costs incurred using this method such as paperwork, inspections, trucking and rail transport costs.

Growing demand from Asia also created fresh demand, opening up new trading opportunities. This saw many shippers in the Midwest Corn Belt become frequent users of rail networks to Pacific ports in preference to using traditional bulk export routes via the Mississippi River’s extensive barge system to ocean terminals in the Gulf.

Southeast Asia, Taiwan, South Korea and China remain the most reliant on shipments using containers. Soybeans and corn are the crops most often shipped in containers followed by wheat, with sorghum and barley infrequent cargoes.

Default Exporting Method

The number of containers stuffed with grains peaked alongside bulk freight rates in 2007-08, when the percentage of exports shipped in boxes passed the 5% mark. Although the factors which prompted the shift to containers post-2004 – most notably stratospheric bulk freight rates – have since diminished, the trend continues with a core of shippers using containers as their default exporting method rather than as a substitute for bulk options.

As such, in terms of market share, at least 1% of the total grain and soybean export market has moved in boxes since 2005, with market share hovering at just below 4% for most of this year, according to figures from Informa Economics.

“Most grain (shipped in this way) originates in the Corn Belt,” explained Ken Eriksen, senior vice-president for Transportation Services at Informa Economics. “Most containers are loaded not far from Chicago, St. Louis, Indianapolis and Kansas City, etc., near major or key intermodal yards. Empty containers are drayed to a transloader, loaded with grain and drayed back to a rail or container yard for an intermodal move to the West Coast to meet a vessel.

“There are also a number of transloaders located on the coasts near ports. For those operations, grain is railed from the Corn Belt to the port area in a covered hopper rail car, then transloaded into an empty container near the port. There is not much barge-to-container loading, although there are examples of grain products such as DDGS (distiller dried grains) or soybean meal being barged to Memphis, for example, off-loaded into a truck, transloaded into a container, then railed across the country to a port for export.”

Shippers using this method vary widely from multinationals such as ADM, Bunge, Cargill, Louis Dreyfus, Mitsui, Zen No and Marubeni, down to much smaller players.

“The majors typically own or run the bulk elevators,” said Eriksen. “Some majors have transloading stations for containers, but regional companies usually do more transloading. The regional players have agreements with the majors and make use of their access to local markets, specializing in obtaining containers in the Corn Belt and working with importers and freight forwarders for equipment.”

For the most part, container lines have eagerly welcomed grains as a vital backhaul trade from the U.S. — which imports far more than it exports by container — although there have been periods of high demand when carriers have had to limit the number of boxes containing grain because of the excessive weight strains they can place on vessels.

“Container exports tend to be smooth through the year, but will display typical export patterns of higher volumes during and following harvest,” said Eriksen. “The late summer/fall peak is correlated with crop harvest and available container equipment from the import peak season.”

Container Shortage

However, the trade still remains susceptible to container and bulk rate fluctuations and other supply-side trends. A case in point was 2010. An early peak season for containerized exports from Asia to the U.S. prompted a major box shortage. For container lines, many of which have suffered from seasonal shortages of boxes since the end of the global recession after investment cutbacks on box fleets and the subsequent hike in box prices, the priority became getting the empty box back to the load port in Asia rather than lose precious days looking for a low rate backhaul cargo. Shippers were forced to compete on price for boxes where they were available.

The container shortage further pushed up container spot rates and coincided with a slump in ocean freight rates for bulk carriers that continue to this day. This perfect storm last year saw grain and oil exports by container fall to lower than 10,000 containers per month for much of the U.S. late-spring, summer and fall period, the longest sustained slump since 2006 (see table, page 36).

As this year’s container peak season was approaching in late summer, ocean bulk freight rates remained bearish for most vessel categories, while container rates were steady for backhaul ex-U.S. cargoes.

“Lower dry bulk freight rates tend to make containers less competitive, but there is a niche that is keeping steady flows of containers being used and employed,” said Eriksen, who added that wheat exports by container were flourishing in the weeks before and through September.

Another source said that during the current peak season box shortages would not be severe, but scarcity remained a factor and grain shippers would have to compete on price to secure boxes.